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THE  LIBRARY 

OF 

THE  UNIVERSITY 

OF  CALIFORNIA 

LOS  ANGELES 

SCHOOL  OF  LAW 


jIiu^^o-  CUk 


^UiiiJ^L   nO  l^^cLtu+t^aUJl 


SELECTED   CASES 


ox 


THE  LAW  OF  PARTNERSHIP 


INCLUDING 


LIMITED    PARTNERSHIPS. 


SELECTED    CASES 


ON 


THE  LAW  OF  PARTNERSHIP, 


INCLUDING 


LIMITED    PARTNERSHIPS. 


BY 

FRANCIS   M.   BURDICK, 

I  %  % 
DWIGHT   PROFESSOR   OF    LAW   IN   COLUMBIA   UNIVERSITY 
SCHOOL   OF    LAW. 


BOSTON: 
LITTLE,  BROWN,  AND   COMPANY. 

1898. 


Copyright,  1898, 
By  Francis  M.  Burdick. 


All  rights  reserved. 


T 


Iprfntfra 
8.  J.  Txekhill  &  Co.,  Boston,  U.  S.  A, 


CONTENTS. 


n 


CHAPTER  I. 
The  Formation  of  a  Partnership. 

PAGB 

§  1.  Partnership,  Inter  Se  :  Results  from  Contract  .    .    .  1-10 

"  The  Contract  must  be  Enforceable 9-11 

"  It  Need  be  Expressed 12-16 

"  Words  are  not  Conclusive 16-19 

§  2.  Specific  Intent  to  Form  Partnership  not  Essential    .  20-21 

§  3.  A  Common  Business  with  a  View  of  Profit       ....  21-36 

"  A  Provisional  Committee  is  not  a  Partnership  ...  33 

"  An  Agreement  for  a  Partnership 34-36 

§  4.  Joint-Stock  Companies 37-40 

"  Defectively  Incorporated  Associations 41-44 

CHAPTER  II. 

Partnership  as  to  Third  Persons. 

§  1.     Test  of  Sharing  Profits 45-49 

§  2.     Various  Exceptions  to  the  Old  Rule 50-61 

§  3.     Test  of  Intention 62-96 

"       Relations  of  Executors  of  Deceased  Partners  to  the 

Firm 77-80 

"       Sharing  Profits  and  Losses 88-95 

§  4.     Partner  by  Estoppel 96-130 

Action  by  Creditors  against  him 101-108,  112 

Distribution  of  Holding-out  Partnership's  Assets  .      112-130 


CHAPTER   III. 

The  Nature  of  a  Partnership. 

§  1.     TnE  Firm:    Its  Members:    Its  Name  .......  131-159 

"       The  Infancy  of  a  Partner 154-158 

§  2.     Firm  Title:    How  Taken  and  Held 160-187 

"       Partition  of  Firm  Property 166-175 

"       Firm  Real  Estate 161,  176-185 

"        Exempt  Property 180 


72 


Vf  CONTENTS. 

PAGB 

§  3.  Firm  Title  Devested  by  Act  of  the  Firm    ....  187-209 

"       When  Firm  is  Insolvent 196-209 

"       Devested  by  Act  of  One  Partner 210-217 

"  Not  Devested  by  Sale  of  a  Partner's  Interest  .     .  218-244 

§  4.  Firm  Title  after  the  Death  of  a  Partner      .     .     .  245-270 

§  5.     Liability  of  Surviving  Partners 271-275 

§  6.     Firm  Debts  and  Partners'  Joint  Debts 276-284 

"        Firm  Debt  is  Debt  of  Each  Partner 285-289 

"  Sole  Debt  of  a  Partner  for  Firm  Benefit      .     .     .  290 

"  Firm  Debt  Converted  into  Separate  Debt  ....  293 

§  7.     The  Nature  of  Firm  Contracts 296-302 

§  8.     Lnjuries  to  the  Firm 303-305 

CHAPTER   IV. 

Powers  of  Partners. 

§  1.     Power  to  Sell  Firm  Property 306-310 

§  2.     To  Incur  a  Firm  Obligation 311-352 

"        To  Execute  a  Sealed  Instrument 343-346 

"        To  Render  the  Firm  Liable  in  Tort 346-352 

"        Powers  of  the  Majority 353 

"        Effects  of  Dissent 356 

"  Notice  of  Limitations  on  a  Partner's  Power  .     .     .  361 

§  3.  Powers  of  a  Partner  after  Dissolution       ....  363-375 

CHAPTER   V. 

Rights  and  Remedies  of  Creditors. 

§  1.     Firm  Creditors  at  Law 376-383 

"       Effect  of  Novation 384-387 

"  Effect  of  Judgment  against  One  Partner  ....  388-395 

"       Remedies  against  Dormant  Partners 396-403 

§  2.     Separate  Creditors  at  Law 403-423 

§  3.     Creditors  in  Equity 424-444 

§  4.     The  Bankruptcy  of  the  Firm 444-450 

"        The  Bankruptcy  of  a  Partner 451-470 

"        Order  of  Proofs  and  Marshalling 471-487 

§  5.     Death  of  a  Partner 488-500 


CHAPTER  VI. 

Duties  and  Liabilities  of  Partners  Inter  Se. 

§  1.     The  Utmost  Good  Faith 501-514 

§  2.     To  Devote  Themselves  to  the  Business 515-517 

§  3.     To  Contribution 518-524 

§  4.     Actions  at  Law  between  Partners 525-543 


CONTENTS.  vii 


CHAPTER   VII. 
Dissolution  of  Partnerships. 

PAGE 

§  1.     By  Operation  of  Law 544-553 

§  2.     Dissolution  by  the  Act  of  the  Parties 554-550 

§  3.     Dissolution  by  the  Court 557-502 


CHAPTER   VIII. 

Accounting  and  Distribution. 

§  1.     Rules  of  Distribution 563-570 

§  2.     Repaying  Advances 570-574 

§  3.     Repaying  Capital 575-580 

§  4.     Adjusting  the  Equities  of  Partners 580-5S8 

§  5.     The  Good-Will  of  the  Firm  Business 588-605 

CHAPTER   IX. 

Limited  Partnerships. 

§  1.     Their  Origin  and  Nature 606-618 

§  2.     Who  May  Compose  Them 619-623 

§  3.     Requisites  to  their  Formation 624-645 

§  4.     Notice  to  Creditors  of  Firm  Business 646 

§  5.     Creditors  may  be  Estopped 647-653 

§  6.     Removal  to  Another  County 653-655 

§  7.     Renewal  Certificates  and  Affidavits 655-663 

§  8.     Ante-Partnership  Negotiations 604-005 

§  9.     Partnership  Capitai 606 

§  10.  Preferences  Forbidden 667-672 

§  11.  Transformed  into  General  Partnerships      ....  G73-07S 

§  12.  Creditors  of  the  General  Partner 67S-080 


TABLE    OF    CASES. 


PAGE 

Grace  v.  Smith 45 

Green  v.  Beesley ff 

v.  Taylor         H3 

Griswold  u.  Waddington      ....  544 

Groth  v.  Kersting 563 

Groves  v.  Wilson °30 

Gyger's  Appeal 58b 

Hackett  v.  Stanley 57 

Haisc  v.  Gray 246 

Haines  &  Co.'s  Estate 482 

Hallowell  v.  Blackstone  Nat.  Bank  .  288 

Hammond  v.  Jethro 245 

Hamsmith  v.  Espy 376 

Harlow  v.  La  Brum 502 

Harrison  v.  Jackson 343 

Hart  v.  Woodruff 370 

Haskins  v.  Curran 534 

v.  D'Este 135 

Head,  In  re 386 

Helme  v.  Smith 21 

Hendren  v.  Wing 161 

Hill  v.  Cornwall 474 

Hinds  v.  Battin 604 

Hoare  v.  Dawes 1 

Hobbs  v.  Chicago  Packing,  &c.  Co.  349 

Hogan  v.  Hadzsits 660 

Holmes  v.  Higgins 33 

v.  McDowell 434 

v.  Miller 417 

Hughes  v.  Gross 296 

Hyde  v.  Moxie  Nerve  Food  Co.  .     .  159 

International  Trust  Co.  v.  Wilson    .  361 

Irving,  In  re        334 

Island  Saving's  Bank  v.  Galvin   .     .  500 

Jackson  Bank  v.  Durfey      ....  201 

Jaffray  v.  Jennings 378 

Johnson  v.  Wingfield 406 

Junes  v.  Newsom 460 

Jurgens  v.  Ittmann 558 

Kemptner,  In  re 196 

Kendall  v.  Hamilton 488 

Kenney  v.  Howard 271 

Kirwan  v.  Kirwan 384 

Kruschke  v.  Stefan 167 

Lambert's  Case 210 

Lane  v.  Williams 488 

Latta  v.  Kilbourn 503 

Leggett  v.  Hyde 50 

Leserman  v.  Bernheimer     ....  505 

Lindner  v.  Adams  County  Bank  .     .  262 

Lovell  v.  Beauchamp 155 

Lyth  v.  Ault 385 

Mabbett  v.  White 212 

McAuley  v.  Cooley 535 

McCruden  v.  Jonas 478 

McLaughlin  v.  Mulloy 301 

McLennan  v.  Hopkins      .         ...  41 

Maddock's  Admx.  v.  Skinner  .     .     .  250 

Magilton  v.  Stevenson 573 


PAGE 

Manchester  Bank,  Ex  parte.    In  re 

Mellor 263 

Marlett  v.  Jackman 547 

Martin  v.  Baird 34 

Mar  wick,  In  re 445 

Mason  r.  Eldred 388 

v.  Sieglitz 537 

Mattingly  v.  Stone's  Adm'r     .     .     .  510 

Mattix  v.  Leach 468 

Maugham  v.  Sharpe 160 

Meehan  v.  Valentine        80 

Menagh  v.  Whitwell 222 

Merrall  v.  Dobbins 86 

Messner  v.  Lewis 133 

Metropolitan  Nat.  Bank  v.  Sirret     .  633 

Michalover  v.  Moses 417 

Mick  v.  Howard 131 

Miller  v.  Royal  Flint  Glass  Works  .  137 

Miller's  River  Nat.  Bank  v.  Jefferson  471 

Mohawk  Nat.  Bank  v.  Van  Slyck    .  396 

Molineaux  v.  Raynolds        ....  169 

Monroe  v.  Hamilton 306 

Morris  v.  Wood       531 

Motley  i'.  Wickoff 293 

Murray  v.  Murray 451 

Myers  v.  Edison  General  Electric  Co.  644 

Nason,  Ex  parte 473 

Nathanson  v.  Spitz 393 

Needham  v.  Wright 260 

Nehrbross  v.  Bliss        246 

Newby  v.  Harrell 543 

Newman  v.  Bagley 285 

Noyes  v.  Crandall 335 

Ogden  v.  Arnot 461 

Oliver  v.  Gray 16 

Patrick  v.  Weston 529 

Patterson  v.  Atkinson 241 

Patton  v.  Carr 248 

Patty-Joiner  Co.  v.  City  Bank     .    .  484 

Pawsey  v.  Armstrong 90 

Peacocks  v.  Chambers 353 

Pease  v.  Cole 314 

Pendleton  v.  Beyer 584 

People  v.  E.  Remington  &  Sons  .     .  442 

Pertli  Amboy  Manuf'g  Co.  v.  Condit  673 

Phillips  v.  Phillips 8 

v.  Stanzell       323 

Pierce  v.  Bryant 631 

Plummer,  In  re 444 

Polk  v.  Buchanan 62 

Pond  v.  Kimball 186 

Potter  v.  Tolbert 367 

Quackenbush  v.  Sawyer      ....  25 

Rand  v.  Wright 266 

Ransom  v.  Wardlaw  Co 468 

Rapp  v.  Latham 341 

Reynell  v.  Lewis 33 

Reynolds  v.  Pool 30 

Richards  v.  Le  Veille 281 

Richardson  v.  Moies 366 

v.  Redd       260 


TABLE   OF    CASES. 


i 

xi 


Riper  v.  Poppenhausen  .... 
Robinson  v.  Wilkinson  .... 
Robinson  Bank  p.  Miller  .  .  . 
Rodgera  p.  Meranda  .... 
Roger  Williams  Nat.  Bank  v.  Hall 

Rosenstein  p.  Burns 

Ross  v.  White 

Rothwell  v.  Humphreys  .  .  . 
Rowland  and  Crankshaw,  In  re  . 

Ruffin,  Ex  parte 

Rusling  v.  Brodhead 

Russell  v.  Cole        

17.  MeCall 

Ryder  v.  Wilcox 


PAGE  ' 

653 
396 

165 
424 
473 
557 
587 
313 
121 
192 
273 
469 
256 
525 


Sandusky,  Abraham,  In  re  .     .     .     .  421 

Sarmiento  p.  The  Catherine  C.    .     .  678 

Saunders  v.  Reilly       277 

Scarf  v.  Jardine       101 

Shain  p.  Du  Jardin 138 

Sherrod  p.  Langdon 112 

Sherwood  v.  His  Creditors       .     .     .  678 

Sindelare  p.  Walker 304 

Singer  v.  Kelly        674 

Solomon  v.  Kirkwood 554 

Stahl  v.  Osmers 237 

State  Bank  v.  Kelley  Co 243 

Staver  Manuf  g  Co.  p.  Blake   .    .    .  649 

Stevens  p.  Perry 377 

Stewart's  Case        493 

Straffin  v.  Newell 344 

Stratton  v.  O'Connor 61 

Taft  v.  Schwamb 577 

Tapley  v.  Butterfield       211 

Taylor  v.  Rasch 646 

p.  Wilson 112 

Teague  p.  Lindsey 207 

Thayer  v.  Goss 102 


PAGE 

Thayer  v.  Humphrey 117 

Thillman  p.  Benton 85 

Thompson  p.  Brown 211 

p.  First  Nat.  Bank        ....  96 

Tracy  p.  Tuffly        647 

Trego  p.  Hunt 602 

Vetsch  p.  Neiss 328 

Vetterlein,  In  re 276 

Voorhis  p.  Childs'  Executor    .    .     .  490 

Walker  p.  Hirsch 90 

Warren  p.  Taylor 580 

Warring  p.  Arthur 518 

Waugh  t\  Carver 47 

Weiss  p.  Weiss 55 

West  p.  The  Valley  Bank  ....  132 

Whelan  p.  Shain 283 

Whitcomb  p.  Converse 575 

White  p.  Eiseman       640 

Whitney  p.  Gretna  State  Bank    .     .  7 

Wiggins  r.  Blackshear 198 

Wild  p.  Davenport 77 

v.  Milne 166 

Williams  p.  Farrand 588 

p.  Gillies 290 

v.  Whedon 254 

Willis  p.  Henderson 418 

Wilson  p.  Wilson 538 

Winter  p.  Pipher 90 

Wood  v.  American  Fire  Ins.  Co.  .     .  240 

v.  Braddick 369 

Woodward  v.  McAdam 163 

Woodward-Holmes  Co.  v.  Nudd  .     .  179 

Wright  p.  Cudahy       568 

Yerkes  v.  McFadden 382 

Yorkshire  Banking  Co.  v.  Beatson  .  141 


CASES   OX  PARTNERSHIP. 


CHAPTER   I. 

the  formation  of  a  partnership. 

§  1.     Partnership  Inter  Se  :    PiEsults  from  Contract. 

FINCKLE   v.    STACY. 

Macnaghten's  Sel.  Cas.  in  Chancery,  9.     1725. 

The  parties  to  this  action  entered  into  joint  articles  for  doing  a  par- 
ticular piece  of  work  for  the  late  Duke  of  Marlborough,  on  account 
of  which  several  sums  of  money  had  been  jointly  received  by  them 
and  immediately  divided  between  them.  A  sum  remaining  in  arrear, 
Stacy  asked  Finckle  to  join  him  in  a  suit  for  its  recover}*.  Finckle 
refused,  and  Stacy  recovered  his  half  of  the  sum.  Finckle  brought 
this  action  for  a  moiety  of  this  recovery,  on  the  ground  that  it  was 
partnership  money. 

"  But  the  court  were  of  opinion  it  was  not  to  be  considered  as  a 
partnership,  but  only  an  agreement  to  do  a  particular  act,  between 
which  there  is  a  great  difference ;  and  that  it  is  so  is  plain,  for  the 
money  which  the}'  received  the}*  immediately  divided,  and  did  not  lay 
out  on  a  common  account.  .   .  .' 


IIOARE  v.   DAWES. 

1  Douglas.  371.     1780. 

The  plaintiffs,  who  were  bankers,  had  advanced  a  sum  of  money  on 
certain  tea-warrants  of  the  East  India  Company  to  Contencin,  a 
broker,  who  deposited  the  tea- warrants  with  the  plaintiffs  as  a  secur- 
ity, and  also  gave  them  his  note  of  hand  for  the  sum  advanced.  He 
had  been  employed  by  a  number  of  persons,  of  whom  the  defend.ints 
were  two,  to  purchase  a  lot  of  tea  at  the  East  India  Company's  sale, 
of  which  they  (together  with  himself)  were  to  have  separate  shares,  the 
lots  being,  in  general,  too  large  for  any  one  dealer.  The  practice  at 
such  sales  is,  for  the  company  to  give  a  warrant  or  warrauts  to  the 


1 


2  THE   FORMATION   OF    A   PARTNERSHIP.  [CHAP.  I. 

broker  or  purchaser,  for  the  deliver}-  of  the  quantity  of  tea  purchased, 
ou  payment  being  made.     At  the  time  of  the   sale,  £25  per  cent  is 
advanced,  and  is  forfeited  unless  the  whole  is  paid  on  the  third,  which 
is  the  last,  day  of  payment.     If  paid  sooner,  allowance  is  made  for 
prompt  payment.     The  warrants  are  often  pledged,  and  money  raised 
upon  them  ;    generally  considerably  less  than   the  supposed  value  of 
the  tea.     It  happened,  however,    in  this  instance,  between   the   time 
of  the  deposit  of  the  warrants  with  the  plaintiffs  and  the  time  when 
the  payment  was  to  be  made  at  the  India  House,  that  the  value  of 
the  tea  sunk  so  much  as  to  be  considerably  under  the  amount  of  the 
sum  advanced.     The  broker,  in  the  mean  time,  had  become  a  bank- 
rupt, and  had  informed  the   plaintiffs  who  his  employers  were,  all  of 
whom,  except  the  defendants,  were  since  either  dead  or  become  bank- 
rupts.    The  shares  of  the  defendants  were  to  be  two-sixteenths  of  the 
whole  lot.     The  ground  of  the  action  was,  that  all  the  employers  of  the 
broker  were  to  be  considered   as  partners,  and  jointly  and  severally 
liable  for  the  whole.     The  defendants  owed    nothing  upon  their  own 
two-sixteenths.     There  was  not  an}-  joint  concern  in  the  redisposal  of 
the  tea.  .  .  .  Verdict  for  defendant,  and  rule  nisi  for  a  new  trial. 

The  Solicitor-  General,  Dunning,  and  Davenport,  for  the  plaintiffs  ; 
JBearcroft,  Lee,  and    Wood,  for  the  defendants. 

Lord  Mansfield.  I  considered  this,  at  first,  as  a  case  of  dormant 
partners.  The  law  with  respect  to  them  is  not  disputed;  viz.,  that 
they  are  liable,  when  discovered,  because  they  would  otherwise  receive 
usurious  interest  without  any  risk  ;  but,  towards  the  end  of  the  cause, 
the  nature  of  the  transaction  and  of  these  loans  was  more  clearly 
explained,  and  I  was  satisfied  with  the  verdict,  and  am  now  confirmed 
in  my  opinion.  .  .  .  Is  this  a  partnership  between  the  buyers?  . I. think 
it  is  not ;  but  merely  an  undertaking  with  the  broker  by  each,  for  a 
particular  quantity.  There  is  no  undertaking  by  one  to  advance 
money  for  another,  nor  any  agreement  to  share  with  one  another  in 
the  profit  or  loss.  The  broker  undertakes  to  buy  and  sell,  but  makes 
no  advance  without  the  security  of  the  tea-warrants,  which  are  con- 
sidered as  cash,  and  pass  by  delivery,  like  East  India  bonds.  Thes§_ 
warrants  are  pawned  with  the  lender,  but  the  broker  has  no  power 
to  pledge  the  personal  security  of  the  principals.  He  cannot  sell  the 
warrants,  and  borrow  more  money  on  such  personal  security.  It 
makes  no  difference  whether  specific  tea  or  the  warrants  are  delivered  at 
the  sale.  It  would  be  most  dangerous,  if  the  credit  of  a  person  who 
engages  for  a  fortieth  part,  for  instance,  should  be  considered  as  bound 
for  all  the  other  thirty-nine  parts.  Non  hcec  in  fcedera  veni.  .  .  . 
"Willes  and  Ashhurst,  JJ. ,  of  the  same  opinion. 
Buller,  J.  This  is  a  very  plain  case.  The  plaintiffs  had  no  reason 
to  consider  the  broker  as  a  partner  with  the  other  persons,  for  though 
he  had  a  share,  he  did  not  act  or  appear  .as  a  partner,  nor  were  they 
partners  as  among  themselves.  They  had  never  met  or  contracted 
together  as  partners.     If  this  transaction  were  sufficient  to  constitute 


§  1.]    PARTNERSHIP  INTER  SE  :  RESULTS  FROM  CONTRACT.       3 

a  partnership,  a  broker  would  have  it  in  his  power  to  make  five  hun- 
dred persons  partners,  who  had  never  seen  or  heard  of  one  another ; 
or  might,  at  his   pleasure,  convert  his  principals  into  partners,  or  not, 
without  any  authority  from  them,  by  taking  joint  or  separate  warrants. 
— — — —  The  rule  dischqrgi  <L 


Ex  parte  BRIGGS.     In  re  NOTLEY. 

3  Deacon  &  Chitty,  367.     1833. 

Miss  Briggs  loaned  £230  to  Notley  to  enable  him  to  establish  a 
chocolate  manufactory,  and  he  gave  a  bond  for  the  repayment  of  the 
same  in  five  years  with  interest  at  five  per  cent.  Later  Notley  agreed 
to  pay  her  monthly  one-eighth  of  the  net  profits  of  the  business  in 
addition  to  the  interest.  She  alleged  that  such  payments  were  to  be 
in  diminution  of  the  principal ;  but  Notley  claimed  they  were  to  be 
made  for  the  use  of  the  money.  After  several  monthly  payments,  he 
was  unable  to  continue  them,  and  being  in  default  as  to  the  interest 
also,  Miss  Briggs  issued  a  fiat  against  him. 

Mr.  Montague  and  Mr.  Zovat,  for  the  petition. 

Mr.  Ching  and  Mr.  Swanston,  for  the  creditor. 

Sir  J.  Cross.  This  is  a  petition  of  the  bankrupt  to  supersede  the 
fiat,  on  the  ground  that  the  petitioning  creditor  was  his  partner  in 
trade.  But,  as  his  honor  the  Chief  Judge  has  already  stated,  there 
was  no  contemplation  of  any  partnership  in  fact.  It  is  true,  that  if 
B.  agrees  to  give  A.  a  share  in  the  pro'fits  of  his  business,  the  court 
may  consider  them  quasi  partners,  for  all  purposes  of  responsibility 
to  third  persons.  But  B.,  after  borrowing  money  of  A.,  cannot  turn 
round  upon  him  and  say,  "you  are  my  partner,  by  operation  of  law, 
ancL4h^t&fo*!e-I-jwrll-~»ot^pay--you  your  debt,"  This  would  not  be  per- 
mitted by  any  court,  either  of  law,  or  equity.  But  even  if  there  was 
a  partnership  between  these  parties,  I  think  that  this  debt  was  inde- 
pendent of  any  partnership  transaction,  and  is  quite  sufficient  to  enable 
a  petitioning  creditor  to  sustain  a  fiat.  It  appears  to  me,  however, 
that  there  was  no  partnership  in  fact. 

Petition  dismissed. 

The   statement  of  facts   has   been    abridged   and   the   opinions  of 
Erskine,  C.  J.,  and  Sir  G.  Rose  are  omitted. 


FISH  v.  THOMPSON   et  al. 

68  Vt.  273  :   35  At.  174.     1895. 

Rowell,  J.     It  is  manifest  that  the  bill  cannot  be  maintained  against 
the  defendants,  Tuttle  and  Slason,  for  the  allegations  relied  upon  for 


4  THE    FORMATION   OF   A   PARTNERSHIP.  [CHAP.  I. 

relief  against  them  a  are  negatived  by  the  findings  of  the  master.  Nor 
do  those  findings  show  that  the  orator  and  the  defendant  Thompson 
were  partners,  as  the  latter  claims.  Thompson  and  Freeman  were 
partners  in  business.  The  orator  signed  with  Freeman  for  money  that 
went  into  the  concern,  and,  becoming  alarmed  lest  he  should  lose 
thereb3r,  he  consulted  Thompson  about  the  matter,  and  thereupon  pro- 
cured a  chattel  mortgage  and  an  assignment  from  Freeman  of  his  entire 
interest  in  the  partnership,  for  the  sole  purpose  of  securitj'  against 
such  loss.  At  the  time  of  the  assignment  it  was  understood  between 
Thompson  and  the  orator  that  the  business  should  be  closed  out  and 
sold  as  a  whole  as  soon  as  possible,  the  debts  paid,  and  the  remainder 
divided  between  them  according  to  their  several  interests.  Freeman 
and  the  orator  understood  that,  if  anything  remained  in  the  orator's 
hands  after  such  division  and  his  indemnity,  it  should  belong  to  Free- 
man. Freeman  did  not  continue  with  the  firm  as  an  active  member, 
but  only  as  a  clerk  for  wages  ;  and  the  partnership  was  soon  dissolved 
by  mutual  consent,  for  prudential  reasons,  and  the  firm  name  of  C.  A. 
Thompson  &  Co.  adopted,  the  orator  objecting  to  have  his  name  appear 
in  connection  therewith.  The  business  was  thereafter  carried  on  in  the 
new  name,  Thompson  being  the  managing  man  until  his  health  failed, 
when  he  turned  the  business  over  to  the  orator,  who  took  charge  and 
proceeded  to  dispose  of  the  property,  buying  no  more  goods,  and 
closed  out  the  stock  in  about  two  months.  The  relation  that  the  orator 
originally  sustained  to  Thompson  and  to  the  property  and  the  business 
was  never  changed,  and  was  never,  so  far  as  appears,  understood  by 
them  to  be  changed  ;  and  Thompson  knew  what  that  relation  was  from 
the  first,  as  the  orator  consulted  him  about  the  matter  before  he  took 
his  assignment.  The  orator  was  a  mere  security  holder  throughout, 
and  therefore,  as  matter  of  law,  any  residue  in  his  hands  would  belong 
to  Freeman,  as  they  understood  it  would.  He  could  in  no  event  par- 
ticipate in  the  profits  as  a  principal  trader  in  the  management  of  the 
business,  which  is  essential  to  a  partnership,  but  does  not  of  itself,  as 
matter  of  law,  constitute  a  partnership,  though  a  most  important  ele- 
ment in  determining  whether  one  exists  or  not.  Hence,  as  the  orator 
had  no  communit}7  of  interest  in  the  profits  as  such  principal,  there 
was  no  partnership  between  him  and  Thompson.  A  community  of 
interest  by  way  of  security  for  the  payment  of  moiie}"  by  Freeman  is 
not  enough.  Thus  in  Moll  wo  v.  Court  of  Wards,  L.  R.  4  P.  C.  419, 
the  person  sought  to  be  charged  as  a  partner  advanced  large  sums  of 
money  to  a  firm  of  merchants,  and  took  as  a  security  a  charge  of 
20  per  cent  commission  on  all  the  profits  made  by  the  firm  until 
the  whole  amount  of  the  debt  due  him  should  be  paid  off,  with  12 
per  cent  interest  on  all  cash  advances  that  had  been,  or  might  be  there- 
after, made  by  him  to  the  firm  ;  and  large  powers  of  control  were  con- 
ferred upon  him,  but  he  had  no  initiative  power.  The  court  held  that 
the  contract  was  really  and  in  substance  what  it  purported  to  be, 
1  The  bill  alleged  that  their  claims  were  fraudulent. 


§  1.]         PARTNERSHIP   INTER   SE :   RESULTS   FROM   CONTRACT.  5 

namely,  one  of  loan  and  security  between  debtors  and  their  creditor, 
and  not  one  of  partnership,  and  said  that  if  cases  should  arise  where 
persons,  under  the  guise  of  such  an  arrangement,  were  really  trading 
as  principals,  and  putting  forward  as  ostensible  traders  others  who 
were  really  their  agents,  the  law  would  look  to  the  body  and  substance 
of  the  arrangement,  and  fasten  responsibility  on  the  parties  according 
to  their  true  and  real  character. 

The  case  stands  for  disposition,  therefore,  between  Thompson  and 
the  orator,  on  the  basis  of  a  joint  ownership  between  them  of  the  char- 
acter shown,  and  not  on  the  basis  that  they  were  partners  ;  and,  as  no 
question  is  made  as  to  the  sufficiency  of  the  pleadings  for  such  relief  as 
they  may  be  entitled  to,  the  case  stands  for  consideration  in  this  behalf 
on  "its  merits,  leaving  the  parties  to  apply  below  for  such  amendments, 
if  an}',  as  they  may  deem  necessary. 

It  makes  no  practical  difference  whether  the  firm  was  dissolved  by 
Freeman's  assignment  to  the  orator,  or  by  mutual  consent  soon  after  ; 
for,  if  by  the  former,  the  rights  and  powers  of  the  firm  rested  wholly 
in  Thompson,  as  far  as  necessary  to  enable  him  to  properly  administer 
his  quasi  trust  of  settling  the  business,  and  accounting  to  the  orator 
for  Freeman's  share  of  the  residue  remaining  for  distribution  ;  and,  if 
by  the  latter,  Thompson  was,  as  the  case  shows,  the  liquidating  part- 
ner, and  as  such  he  was  the  agent  of  the  late  firm  to  collect  and  adjust 
its  bills  receivable,  to  convert  its  assets  into  money,  to  discharge  its 
outstanding  liabilities,  and  to  pay  over  to  the  orator  Freeman's  share 
of  the  surplus.  And  in  either  view  he  has  the  right  that  partners  gen- 
erally have  in  respect  of  being  reimbursed  for  advances,  which  is  to 
have  a  lien  on  the  assets,  and,  after  the  partnership  debts  are  satisfied, 
to  be  paid  before  the  surplus  is  divided. 

The  master  finds  that  the  orator  has  in  his  hands  a  balance  of 
$294.29,  derived  from  the  business  while  he  had  charge  of  it.  This  he 
must  account  for.  It  is  conceded,  however,  that  he  may  deduct  there- 
from the  sum  of  $150  due  him  for  services  in  closing  out  the  business, 
which  leaves  $144.29  to  be  accounted  for. 

The  orator  claims  a  personal  decree  against  Thompson  for  $600  that 
he  put  into  the  concern  in  the  manner  following :  Thompson  applied  to 
him,  and  said  that  the  debts  were  pressing,  and  that  he  must  furnish 
more  money  on  that  account,  and  to  equalize  what  he  himself  had 
advanced  ;  and  thereupon  the  orator  advanced  $600,  taking  no  evidence 
of  indebtedness,  and  the  amount  was  credited  to  him  on  the  books  of 
the  concern,  in  his  regular  account.  He  claimed  before  the  master  that 
this  was  a  loan  to  Thompson,  but  the  master  finds  that  he  advanced 
the  money  for  the  purpose  claimed  by  Thompson,  namely,  to  pay  the 
pressing  debts  of  the  concern,  and  that  Thompson  advanced  a  like 
amount  for  the  same  purpose.  On  this  finding,  the  orator  cannot  have 
a  personal  decree  against  Thompson  for  this  money.  He  must  bo 
taken  to  have  assumed  the  risk  of  getting  his  pay  out  of  the  assets, 
the  same  as  Thompson  did  ;  and  this  is  the  fair  intendment  of  the  find 


6  THE   FORMATION    OF   A   PARTNERSHIP.  [CHAP.  L 

ing,  as  his  claim  of  a  loan  to  Thompson  is  negatived.  But  he  has  a 
lien  on  the  assets  for  reimbursement,  subject,  however,  to  the  rights  of 
partnership  creditors ;  for  in  the  bill  he  expressly  subordinates  his 
rio-hts  to  theirs,  and  the  law  does  the  same.  Nor  are  his  rights  in  this 
behalf  superior  to  Thompson's  rights,  for  they  appear  by  the  finding  to 
have  intended  to  put  themselves  on  an  equality  in  this  matter,  as  one 
object  of  the  orator's  advance  was  to  equal  Thompson's  advance.  The 
orator  claims  no  other  allowances. 

The  defendant  Thompson  claims,  under  his  cross  bill,  that,  if  there 
was  no  partnership  between  him  and  the  orator,  their  joint  ownership  of 
the  property  was  such  as  to  make  the  orator  liable  for  one-half  of  all 
the  debts  and  expenses  necessarily  incurred  in  the  management  of  the 
business,    of   which   there   are  outstanding   and   unpaid    the    sum   of 
$173.21  ;  that  in  addition  thereto  he  is  liable  for  one-half  of  the  $1,000 
for  which  the  Tuttle  note  was  given  by  C.  A.  Thompson  &  Co.,  as  the 
master  has  found  that  that  money  was  used  by  Thompson  in  paying 
debts  of  Thompson  &  Freeman  that  were  a  lien  on  the  goods,  and  in 
managing  the  business  ;  and  that  the  orator  should  pay  to  him  one-half 
of  these   sums,  aggregating  $1,173.21,  less  what  maybe  realized  on 
the  $320  of  accounts  due  to  Thompson  &  Co.,  although  he  is  not  liable 
on  the  Tuttle  note,  nor  to  the  creditors  to  whom  the  other  bills  are  due. 
But  this  claim  cannot  be  maintained.     Although  by  his  assignment  the 
orator  became  a  joint  owner  with  Thompson,  yet  he  did  not  thereby 
acquire  a  right  to  joint  possession  of  the  partnership  property,  nor  to 
a  joint  management  and   control  of  the  business.     On  dissolution  by 
death,  the   surviving  partner  settles  the  partnership   affairs.     So,  on 
dissolution  by  the  sale  of  one  partner  of  his  interest,  or  by  his  being 
adjudged  bankrupt  or  insolvent,  the  other  partner  is  entitled   to  the 
exclusive   possession  of  the  partnership   property,  and  the    exclusive 
management  and  control  of  the  business  for  the  purpose  of  winding  it 
up.     Harvey  v.  Crickett,  5  Maule   &  S.  336  ;  Renton  v.  Chaplain,   9 
N.  J.  Eq.  62  ;  note  to  Gilmore  v.  Ham,  142  N.  Y.  1  (1894)  ;  40  Am.  St. 
Rep.  571.     And  if  the  dissolution  in  this  case  is  regarded  as  having 
been  by  mutual  consent,  and  not  by  the  assignment   to   the   orator, 
Thompson's  rights  and  authority  in  the  premises  would  be  practically 
the  same,  as  against  the  orator,  as  he  was  the  liquidating  partner.     So, 
in  either  view,  he  had  no  authority  in  law  to  charge  the  orator  in  this 
behalf,  and  no  authority  in  fact  appears;  and  there  is  no  principle  of 
equity  on  which  the  orator  can  be  charged,  as  he  had  no  right  to  par- 
ticipate in  the  management  of  the  business,  nor  any  power  of  control 
over  Thompson   in  respect  of  it,  except  through  the  medium  of  the 
court  of  chancer}*,  which,  for  cause  shown,  would  interfere  by  appoint- 
ing a  receiver. 

The  other  claims  made  by  the  defendant  Thompson  are  based  upon 
the  idea  of  a  partnership  between  him  and  the  orator,  and  as  none 
existed  they  cannot  be  maintained.   .  .   . 

An  account  has  been  taken  that  may  be  sufficient  for  the  purpose  of 


§  1.]         PARTNERSHIP    INTER    SE  :    RESULTS   FROM   CONTRACT.  7 

a  final  decree,  but,  if  not,  such  further  accounting  should  be  had  as 
may  be  found  necessary.  The  assets  not  realized  upon  should  be  con- 
verted into  money,  as  far  as  possible,  and  the  firm  debts  paid,  after 
which  the  orator  and  the  defendant  Thompson  will  be  equally  entitled 
to  be  reimbursed  their  advances,  and  any  residue  remaining  will  be 
equally  distributed  between  them.  .  .  . 

Reversed  and  remanded. 


WHITNEY  v.    GRETNA   STATE  BANK. 

69  N.   W.  (Neb.)  933.     1S97. 

Ragak,  C.  This  is  an  action  in  replevin  for  a  stock  of  goods, 
brought  to  the  district  court  of  Sarpy  County  by  the  Gretna  State  Bank 
against  Howard  Whitney,  sheriff  of  said  county.  The  bank's  claim 
was  that  the  goods  belonged  to  A.  U.  Hancock;  that  he  became  in- 
debted to  it  (the  bank)  in  a  large  sum  of  money,  and  pledged  the  goods 
by  chattel  mortgage  to  it  to  secure  his  debt.  The  sheriff  claimed  that 
the  goods,  after  and  before  the  making  of  the  bank's  mortgage,  were  the 
property  of  A.  U.  Hancock  and  S.  E.  Wolverton  ;  that  these  two  parties 
were  co-partners  ;  that  he  had  seized  the  goods  as  theirs  by  virtue  of 
certain  attachments  issued  at  the  instance  of  their  creditors.  The  case 
was  tried  to  the  court  without  a  jury,  a  finding  and  judgment  rendered 
in  favor  of  the  bank,  and  the  sheriff  prosecutes  here  a  petition  in  error. 

1.  It  is  insisted  that  the  finding  of  the  court  that  the  mortgaged 
property  was  the  individual  property  of  A.  U.  Hancoek  and  that 
Hancock  and  Wolverton  were  not  co-partners  is  not  supported  by  suffi- 
cient evidence.  The  evidence  shows  without  substantial  conflict  that 
Hancock  established  a  general  store  at  Gretna,  Neb. ;  that  he  furnished 
all  the  capital  that  went  into  that  business  ;  that  Wolverton  never 
furnished  any  capital  for  the  venture  ;  that  Hancock  employed  Wolver- 
ton to  conduct  the  store,  and  in  lieu  of  a  salary  promised  to  pay  him 
as  compensation  for  his  services  "  a  living  out  of  the  business,"  and,  if 
the  venture  proved  profitable,  one-half  of  the  profits.  The  evidence 
further  discloses  that  Wolverton  took  charge  of  the  store  and  con- 
ducted the  business  under  this  agreement  as  clerk  and  manager ;  that 
he  and  Hancock  held  themselves  out  to  the  world  as  co-partners  ;  on 
their  letter  heads  they  designated  themselves  as  A.  U.  Hancock  &  Co.  ; 
that  in  their  reports  to  commercial  agencies  they  held  themselves  out 
as  co-partners ;  and  that  the  creditors  represented  by  the  sheriff  in  this 
suit  believed  they  were  co-partners,  and,  relying  upon  that  gave  them 
credit.  If  this  was  an  action  by  some  creditor  of  Hancock  &  Co. 
against  Hancock  &  Wolverton  to  recover  a  debt  for  goods  he  had  sold 
them  relying  upon  the  fact  that  they  wore  co-partners,  we  have  not 
the  slightest  doubt  but  that  Hancock  &  Wolverton,  by  reason  of  their 
conduct,   would  be   estopped  as  against  such  creditor   from  asserting 


8  THE   FORMATION    OF   A   PARTNERSHIP.  [CHAP.  L 

that  they  were  not  in  fact  co-partners.  But  this  is  not  the  case  before 
us.  The  question  presented  to  us  is :  Were  these  men  in  fact  co- 
partners? Was  the  property  involved  in  this  action  co-partnership 
property,  or  was  it  the  property  of  Hancock  ? 

The  relation  of  co-partners  rests  in  contract.  Whether  two  or  more 
persons  are  co-partners  depends  upon  intention,  and,  while  a  co-part- 
nership may  be  established  by  the. course  of  dealing  and  the  conduct 
of  the  parties,  and  perhaps  by  the  admission  of  each  member  thereof, 
still  the  relation,  if  it  exists,  must. rest  in  the  consent  and  the  intention 
of  the  parties  thereto.  It  is  sometimes  said  in  the  books  that  parties, 
by  their  course  of  dealing,  may  make  themselves  partners  as  to  credi- 
tors, notwithstanding  the}'  were  not  in  fact  partners.  But  this  expres- 
sion is  not  strictly  accurate.  An  examination  of  all  those  cases  we 
think  will  show  that,  where  parties  who  were  not  partners  have  never- 
theless been  held  liable  as  such,  they  were  so  held  liable  because,  by 
their  conduct,  they  had  estopped  themselves  from  averring  that  they 
were  not  partners.  But  in  no  case  that  I  have  been  able  to  find  has 
any  court  assumed  to  hold  that  two  or  more  persons  were  co-partners 
as  a  matter  of  law  when  the  persons  had  never  agreed  or  intended  to 
become  such.  The  fact  that  Wolverton  was  to  receive  as  compensa- 
tion his  living  from  the  business,  and  was  to  receive  a  share  of  the 
profits  of  the  venture  if  it  should  prove  profitable,  would  not  alone  sup- 
port a  finding  that  Wolverton  and  Hancock  were  co-partners.  It  takes 
more  than  that  to  constitute  a  co-partnership.  Wolverton  had  no  in- 
terest in  the  subject  matter  of  the  venture.  He  had  no  power  in  the 
management  or  control  of  this  venture  other  than  that  of  an  ordinary 
retail  salesman.  In  iEtna  Ins.  Co.  v.  Bank  of  Wilcox,  48  Neb.  544, 
the  precise  question  presented  here  was  decided.  .  .  .  The  decision  in 
this  last  case  followed  Waggoner  v.  Bank,  43  Neb.  84,  and  Gibson  v. 
Smith,  31  Neb.  354.  We  have  been  to  some  pains  to  re-examine  this 
question,  and  we  are  satisfied  that  the  rule  announced  in  the  cases 

referred  to  is  supported  by  the  great  weight  of  authority 

Affirmed. 1 

1  In  Phillips  v.  Phillips,  49  111.  437  (1863),  Caton,  Ch.  J.,  said  :  "The  only  ques- 
tion in  this  case  is  one  of  fact.  Was  there  a  co-partnership  between  John  Phillips 
and  his  four  sons,  or  was  he  the  sole  proprietor  of  the  business  about  which  the  con- 
troversy had  arisen  ?  It  must  be  remembered  in  the  outset,  that  this  is  a  controversy 
inter  sese,  and  is  not  between  third  parties  and  the  alleged  members  of  the  firm. 
Parties  may  so  conduct  themselves  as  to  be  liable  to  third  persons  as  partners  when 
in  fact  no  partnership  exists  as  between  themselves.  The  public  are  authorized  to 
judge  from  appearances  and  professions,  and  are  not  absolutely  bound  to  know  the 
real  facts,  while  the  certain  truth  is  positively  known  to  the  alleged  parties  to  a  firm. 
A  partnership  can  only  exist  in  pursuance  of  an  express  or  implied  agreement  to 
which  the  minds  of  the  parties  have  assented.  The  intention  or  even  belief  of  one 
party  alone,  cannot  create  a  partnership  without  the  assent  of  the  others.  If  John  S. 
Phillips  designed  and  really  believed  that  there  was  a  partnership,  but  to  which  his 
father  and  brothers  never  assented,  and  in  the  existence  of  which  they  did  not  believe, 
then  there  was  no  partnership,  unless,  indeed,  a  co-partnership  could  be  formed  and 
conducted  without  their  knowledge  or  consent.  This  would  be  simply  absurd.  We 
cannot  in  this  way  surprise  them  into  a  partnership  of  which  they  never  dreamed." 


§  1.]    PARTNERSHIP  INTER  SE  :  RESULTS  FROM  CONTRACT.       9 

GOLDSTEIN   v.   NATHAN. 

158  111.  641 :  42  X.  E.  72.     1S95. 

•  Phillips,  J.  Two  questions  are  presented  and  discussed  as  aris- 
ing on  this  record, — one  the  indefiniteness  of  the  agreement  between 
the  parties,  and  the  other  the  application  of  the  statute  of  frauds  to  the 
facts  in  the  bill  stated.  The  latter  proposition  will  be  first  considered. 
Sec.  2  of  our  statute  of  frauds  and  perjuries  (ch.  59,  1  Starr  &  C. 
Ann.  St.)  provides  that:  "No  action  shall  be  brought  to  charge  any 
person  upon  any  contract  for  the  sale  of  lands,  tenements,  or  heredita- 
ments, or  any  interest  in  or  concerning  them,  for  a  longer  term  than  one 
year,  unless  such  contract,  or  some  memorandum  or  note  thereof,  shall 
be  ;"  ~-t*i-w»-^r»'+  uiaw  i  i  J  II  ■  | I.,  |ft  frp  P^^rp-pH  therpwit.l^  or  some 

other  person  thereunto  by  him  lawfully  authorized  in  writing,  signed  by 
such  party/'  'lie  averment  ot  tne  Dill  13  "  that  the  parties,  being  so 
possessed  of,  and  owning  said  lots  severally,  on  June  1,  1890,  the  com- 
plainant proposed  to  the  defendant  that  they  should  make  a  joint  vent- 
ure or  partnership  in  reference  to  said  two  lots,  and  that  they  should 
participate  in  the  net  proceeds  to  be  derived  from  the  sale  of  them  ; 
that  one  should  be  sold  in  a  short  time,  and  the  other  lot  should  be  held 
lQnger,"  etc. 

The  right  of  each  party  to  this  agreement  has  been  severally  acquired, 
to  each  a  separate  lot,  the  title  to  which  was  held  in  severalty  ;it  I  he  time 
of  the  alleged  agreement.  By  the  terms  of  the  agreement  the  rights  ac- 
quired by  virtue  of  the  deed  by  the  appellee  to  his  lot  were  sought  to  be 
qualified  and  limited.  By  this  agreement,  in  consideration  of  appellant 
agreeing  to  divide  with  appellee  the  profits  made  b}'  appellant  on  the 
sale  of  his  lot,  appellee  was  to  divide  with  appellant  the  profits  on  his 
lot  when  sold.  The  contract  was  executor}'.  Both  sales  were  made, 
and  it  is  sought  to  enforce  the  agreement  as  against  appellee.  TJie- 
contract  was  nut  in  writing.  The  agreement  affected  real  estate  the 
title  to  which  had  been  acquired  by  appellee  before  the  agreement.  If 
the  appellant  hail  any  interest  in  the  lot,  it  was  by  virtue  of  the  agree- 
ment relied  upon,  and  was  b}~  parol,  and  would  be  within  the  statute. 
It  is  clear  that  an  interest  acquired  in  the  land  of  another  by  a  parol 
agreement  is  within  the  statute.  This  proposition  is  not  controverted 
by  the  appellant,  but  it  is  urged  that  an  agreement  for  a  partnership 
for  the  purpose  of  dealing  and  trading  in  lands  for  profit  is  not 
within  the  statute,  and  the  fact  of  the  existence  of  the  partnership, 
and  the  extent  of  each  party's  interest,  may  be  shown  b}'  parol. 
In  this  connection  it  is  insisted  that,  it  appearing  from  the  bill  that  the 
lots  have  been  sold,  nothing  remains  but  to  account  for  the  profits,  and 
it  is  denied  the  statute  of  frauds  in  any  wa}'  controls  the  question.  It 
is  true  that  a  partnership  may  exist  for  the  purpose  of  dealing  in  lands 
for  profit,  and  the  existence  of  such  partnership  and  the  extent  of  the 
interests  of  the  respective  partners  may  be  shown  by  parol.     Speyer  tfi 


10  THE   FORMATION    OF   A    PARTNERSHIP.  [CHAP.  L 

Desjardins,  144  111.  641  ;  Trapbagen  v.  Burt,  67  N.  Y.  30;  Chester  v. 
Dickerson,  54  N.  Y.  1  ;  Getty  v.  Devlin,  Id.  403. 

There  is  a  wide  distinction,  however,  between  an  agreement  for  one 
to  become  interested  in  the  profits  of  certain  land  already  purchased 
and  owned  by  another  and  an  agreement  to  share  in  the  benefits  to  be 
derived  from  lands  to  be  thereafter  acquired.     Where  lands  are  pur- 
chased by  a  partnership,  and  paid  for  with   the   moneys  therejif,   or 
acquired  as  partnership  property  in  the  usual  course  of  business  of  such 
partnership,  a  court  of  equity  may  treat  such  real  estate  as  partnership 
funds,  and,  as  a  consequence,  as  personal  property.     This  rule  grows 
out  of  the  nature  of  the  partnership  relation,  and  is  rendered  necessary 
for  the  purpose  of  doing  justice  between  the  parties,  or  between  the  firm 
and   others  doing  business  and   having  dealings  therewith.     Black  v. 
Black,  15  Ga.  445.     In  this  case  the  land  was  not  purchased  by  appel- 
lant in  the  name  of  appellee,  and  the  purchase  money  furnished  by 
appellant.     It  is  not  a  case  of  a  purchase  of  lands  paid  for  out  of  part- 
nership funds,  and  a  deed  taken  to  appellee.     No  partnership  funds 
existed.     There  was,   therefore,  no  resulting  trust  in   appellant,  and 
whatever  interest  he  is  alleged  by  the  bill  to  have  acquired  was  by  vir- 
tue of  his  contract.     The  lot  was  owned  by  appellee  at  the  time  of  the 
contract,  and  paid  for  by  his  money,  and  any  interest  in  the  land  or 
the  proceeds  growing  out  of  the  alleged  contract  cannot  be  severed  and 
made  to  apply  to  the  profits  as  distinct  from  the  land  itself.     If  the 
'  appellant  acquired  an  interest  in  appellee's  lot  by  virtue  of  his  contract, 
it  attached  upon  the  contract  being  made.     If  such  interest  attached, 
and  the  land  had  not  been  sold,  the  appellant  would  have  been  entitled 
to  his  moiety  therein.     Had  appellee  died  before  sale,  and  appellant 
had  an  interest  in  the  lot,  he  would  have  the  right  to  sell  and  wind  up 
the  partnership  affairs.     It  is  only  by  having  acquired  an  interest  in  the 
lot  that  he  could  have  acquired  an  interest  in  the  proceeds  of  the  sale. 

We  hold  that,  where  two  separate  owners  of  real  estate,  purchased 
by  their  separate  funds,  enter  into  a  co-partnership  with  reference  to  a 
sale  thereof  by  a  parol  contract,  such  contract  is  within  the  statute  of 
frauds.     Vose  v.   Strong,  144  111.  108  ;    Smith  v.  Burnham,  3  Sumn. 
435  ;  McCormick's  Appeal,  57  Pa.  St.  54.     We  hold  that  the  averment 
of  the  bill  setting  forth  the  purchase  price  and  selling  price  of  the  lots, 
and  that  the  net  profits  derived  from  the  sale  were  to  be  participated  in 
by  the  parties,  is  a  sufficiently  definite  averment  to  authorize  a  finding 
by  an  interlocutory  decree  and  a  reference  for  an  accounting  between 
the  parties.     The  statute  of  frauds,  however,  presents  an  insurmount- 
able obstacle  to  the  relief  prayed  for  by  appellant.     It  was  not  error  in 
the  appellate  court  to  affirm  the  decree  of  the  circuit  court  of  Cook 
County. 

The  judgment  of  the  appellate  court  is  affirmed. 


§  1.]         PARTNERSHIP   INTER   SE  :   RESULTS   FROM   CONTRACT.  11 

BURNEY  v.  SAVANNAH   GROCERY  CO. 
98  Ga.  711:  25  S.  E.  915.     1S9G. 

Action  by  the  Grocery  Co.  against  D.  II.  Burney,  son,  and  wife  as 
co-partners.  Mrs.  Burney  alone  defended  on  the  ground  that  while  she 
agreed  to  become  a  partner,  and  while  her  name  was  used  as  that  of  a 
partner,  in  law  she  could  not  be  a  partner  with  her  husband,  so  as  to 
bind  her  separate  estate,  she  being  a  married  woman  and  plaintiff 
having  notice  of  this  fact.  On  the  trial  she  asked  to  put  in  evidence 
the  partnership  agreement,  which  provided  that  she  was  to  have  nothing 
to  do  with  the  management  of  the  business,  and  her  interest  was  to  ex- 
tend only  so  far  as  allowing  her  name  to  be  used  for  the  security  and 
accommodation  of  the  firm.  It  was  objected  to  and  excluded  on  the 
ground  that  it  contained  secret  stipulations  which  were  not  brought 
home  to  plaintiff. 

Jr.  G.  Brantley,  for  plaintiff  in  error. 

W.  M.  Toomer,  contra. 

Lumpkin,  J.  1.  This  case  turns  upon  the  question  whether  or  not, 
in  this  State,  a  married  woman  may  engage  in  business  with  her  husband 
as  a  co-partner.  In  Francis  v.  Dickel,  68  Ga.  255,  it  was  put  in  the 
form  of  a  query  :  "  Can  a  wife  be  her  husband's  partner  in  business?  " 
"We  think  this  question  was  answered  affirmatively  by  the  principle  laid 
down  in  Scofield  v.  Jones,  85  Ga.  816.  After  a  careful  examination 
of  all  our  statutes,  and  many  decisions,  we  have  reached  the  conclusion 
that  there  is  no  law  or  public  policy  in  Georgia  which  forbids  such  a 
partnership,  provided,  always,  it  is  bona  fide  and  actual,  and  not 
merely  colorable.  An  alleged  partnership  cannot  be  used  as  a  mere 
device  for  rendering  the  wife  liable  for,  or  subjecting  her  property  to 
the  payment  of,  debts  of  her  husband.  But,  if  they  really  engage  in  a 
business  as  actual  partners,  we  see  no  reason  why  the  partnership 
should  not  be  regarded  as  a  lawful  one.  The  woman's  law  of  1866 
went  far  towards  the  emancipation  of  married  women.  The  only  re- 
strictions left  upon  their  power  to  contract  were  designed  for  their 
protection  and  benefit.  In  all  cases  where  these  restrictions  do  not 
apply,  they  are  as  free  to  contract  as  men  ;  and  no  one  of  these  restric- 
tions, so  far  as  we  have  been  able  to  ascertain,  prevents  a  married 
woman  from  engaging  in  a  partnership  business  either  with  her  husband 
or  another.  There  are  many  kinds  of  business  in  which  she  is  calcu- 
lated to  make  an  excellent  partner,  and  one  who  is  likely  to  contribute 
to  the  success  of  the  enterprise.  The  whole  matter  is  summed  up  in 
the  following  quotation  from  the  opinion  of  Chief  Justice  Bleckley 
in  the  case  last  cited:  "There  is  nothing  contrary  to  public  policy  in 
allowing  husband  and  wife  to  unite  their  joint  credit  in  procuring  the 
means  of  supplying  joint  resources  in  the  shape  of  a  home,  or  a  place 
of  business  from  which  to  derive  an  income  for  the  support  of  thu 
family.     Very  often  it  would  contribute  to  the  well-being  and  pros- 


12  THE   FORMATION    OF   A   PARTNERSHIP.  [CHAP.  L 

perity  of  both,  and  to  the  permanent  good  of  the  family.  No  doubt, 
such  a  power  can  be  abused  and  misapplied  ;  but  this  is  no  reason  for 
not  recognizing  its  existence,  or  why  the  law  should  not  tolerate  it, 
if,  on  the  whole,  its  results  are  beneficial  rather  than  pernicious.  At 
all  events,  we  think  the  power  exists  at  present  under  our  law." 

2.  Conceding  that  a  wife  may  lawfully  enter  into  a  partnership  with 
her  husband,  secret  stipulations  in  the  partnership  articles  b}r  which 
her  liability  as  a  member  of  the  partnership  is  limited  can  no  more 
in  her  case  than  in  any  other  be  made  binding  upon  innocent  third 
persons  who  contract  with  the  partnership  in  ignorance  of  these  stipu- 
lations. One  who  extends  credit  upon  the  faith  of  her  full  membership 
in  the  firm  is  entitled  to  hold  her  responsible,  just  as  if  she  were  a  man 
or  a  feme  sole. 

Judgment  affirmed. 


DAVIS   v.   DAVIS. 

[1894.]     1  Ch.  393. 

Special  case  for  the  opinion  of  the  court.  Paragraph  5  of  the  case 
is  as  follows  :  "  From  the  death  of  the  testator  until  the  death  of  C. 
F.  Davis,  the  plaintiff  and  C.  F.  Davis  carried  on  the  business  for  their 
own  benefit  under  the  style  of  Lloyd  &  Davis," (the  business  name  of 
the  testator)  "  and  on  the  same  premises,"  (as  had  been  occupied  by 
testator)  "  which  was  advantageous  in  keeping  together  the  connection. 
No  articles  of  partnership  were  ever  executed,  nor  any  agreement  for 
a  partnership  come  to,  nor  was  a  partnership  ever  mentioned  between 
the  plaintiff  and  C.  F.  Davis.  No  accounts  as  between  plaintiff  and 
C.  F.  Davis  were  ever  kept,  nor  was  any  balance-sheet  or  annual 
account  as  to  the  business  prepared,  but  every  week,  and  occasionally 
oftener,  the  plaintiff  and  C.  F.  Davis  each  drew  from  the  business  and 
retained  for  his  use  £3  or  more,  each  one  so  drawing  and  retaining  the 
same  sum  precisely  as  the  other,  and,  save  as  aforesaid,  no  division  of 
profits  or  other  moneys  was  made."  Other  material  statements  appear 
in  the  opinion.     The  defendant  was  the  widow  of  C.  F.  Davis.1 

T.  L.  Wilkinson,  for  the  plaintiff. 

Ashton  Cross,  for  the  defendant. 

North,  J.  .  .  .  The  testator's  will  contains  a  devise  and  bequest 
of  all  the  rest  and  residue  of  the  testator's  estate  and  effects  unto  his 
two  sons,  in  equal  shares,  as  tenants  in  common.  Besides  other  property 
which  is  not  mentioned  in  the  case,  the  sons  took  this  business  as 
tenants  in  common,  and  they  also  took  these  three  houses  in  Summer 
Street  as  tenants  in  common.  At  that  time  there  was  no  partnership 
existing  between  them,  and  the  property  vesting  in  them  as  tenants  in 
common  did  not  in  itself  constitute  a  partnership ;  and  the  question  is, 

1  The  statement  has  been  abridged. 


§  1-]  CONTRACT   NEED    NOT   BE    EXPRESS.  13 

whether  anything  |nn^  piace  afterwards  which  had  the  effect  of  consti- 
tuting  a  partnership.  "■— 

As  regards  the  business,  there  is,  I  think,  sufficient  to  show  that 
there  was  a  partnership.     In  the  first  place,  §   1  of  the  Partnership 
Act,  1890,  provides  that  ' '  p_artnership  i^tiie  relation  which  ^subsists 
between  persons  carrying  on   a  business  in  corxIin^rr^ith^T^ew'oF 
profit."     That  exactly  describes  the  present  case.     1   do  not  lay  ih.it 
thaTis  of  itself  conclusive,  but  it  comes  precisely  within  the  definition 
therein  given  of  a  partnership.     The  special  case  admits  that  profits 
were  divided,  because  the  £3  a  week  or  more  which  was  drawn  out  by 
each  brother  weekly  was   really  a  division  of  profits,  and  the  case 
states  that  "  save  as  aforesaid,  no  division  of  profits  or  other  moneys 
was  made."     Whether  that  £3  a  week  was  or  was  not  entirely  profit, 
at  any  rate  it  is  clear  that  it  was  in  part  a  division  of  profits.     Then 
sub-sects.  1  and  3  of  §  2  of  the  Partnership  Act,  1890,  seem  to  me 
material.      By   sub-sect.    1:     "Joint   tenancy,    tenancy    in   common, 
joint  property,  common  property,  or  part  ownership  does  not  of  itself 
create  a  partnership  as  to  anything  so  held  or  owned,  whether  the  ten- 
ants or  owners  do  or  do  not  share  any  profits  made  by  the  use  thereof.'' 
Sub-sect.  3  is  material,  as  bearing  upon  the  question  of  partnership  in 
the  business,  because  I  have  come  to  the  conclusion,  for  reasons  which 
I  will  mention  presently,  that  there  was  a  partnership  in  the  business, 
though  the  real  estate  was  not  brought  into  the  partnership.     To  deal 
first  with  the  business  itself,  sub-sect.  3  of  §  2  of  the  act  is,  "The 
receipt  by  a  person  of  a  share  of  the  profits  of  a  business  is  prima  fade 
evidence  that  he  is  a  partner  in  the  business."     Now  that  is  exactly 
what  took  place   here.     Each  of  these  brothers  did   receive  at  their 
regular  drawings  money  derived,  to  some  extent  at  any  rate,  from  the 
profits  of  the  business.     Then  sub-sect.  3  goes  on:    "  But  the  receipt 
of  such  a  share,  or  of  a  payment  contingent  on  or  varying  with  the 
profits   of  a  business,  does  not  of  itself  make  him  a  partner  in   the 
business."     We  have,  then,  a  statement  in  the  act  that  the  receipt  of 
a  share  of  the  profits  of  a  business  is  prima  facie  evidence  of  a  partner- 
ship, but  that  the  receipt  of  such  a  share  does  not  of  itself  make  the 
receiver  a  partner  in  the  business.     These  phrases  appear  somewhat 
conflicting,  but   I.  do  not  think  there  is  any  real  difficulty  in  under- 
standing them,  because  the  matter  was  clearly  explained  by  the  Court  of 
Appeal  in  Badeley  v.  Consolidated  Bank,  38  Ch.  D.  238.     It  is  true 
that  that  case  was  decided  before  the  Act  of  1890  was  passed,  but  the 
act  seems  to  me  to  give  effect  to  what  was  there  laid  down.   ...   In 
the  present  case  I  cannot  treat  the  receipt  of  a  share  of  the  profits 
alone  as  prima  facie  evidence   of  a  partnership   if  there  are   other 
circumstances  to  be  considered  side  by  side  with  it.     But  I  cannot  find 
any  other  circumstances   which  conflict  with  it.     Therefore,   I   think 
that  this  sub-section  applies,  and  that  the  receipt  of  a  share  of  profits 
is  prima  facie  evidence  of  a  partnership  in  the  business  from  which 
the  profits  were  derived.     But  I  go  farther,  for  there  arc  certain  cir- 


14  THE    FORMATION    OF    A    PARTNERSHIP.  [CIIAF.  I, 

cumstances  which  not  only,  in  my  opinion,  do  not  conflict  with,  but,  so 
far  as  they  indicate  anything,  are  in  favor  of  that  view. 

In  the  first  place,  each  partner  drew  precisely  the  same  sum,  gen- 
erally weeklv,  but  sometimes  oftener.  The  sum  drawn  was  usualby  £3 
b}r  each,  sometimes  it  was  more  ;  but  when  the  one  drew  more  than  £3 
the  other  also  drew  more.  From  these  facts  I  come  to  the  conclusion 
that  there  must  have  been  some  agreement  as  to  the  mode  in  which  the 
two  brothers  were  to  draw  out  money.  It  is  impossible  to  believe 
that  the  necessities  of  the  two  were  always  so  exactly  equal  that  each 
required  precisely  the  same  sum  per  week  that  the  other  did.  I  come, 
therefore,  to  the  conclusion  that  the  equality  of  their  drawings  arose 
from  some  agreement  between  them  that  the  drawings  out  of  the 
profits  should  always  be  exactly  equal,. 

There  is  another  thing  which  ought  not  to  be  ignored,  although  I  do 
not  wish  to  attach  too  much  weight  to  it.  It  is  clear,  and  it  has  not 
been  disputed,  that  the  business  was  carried  on  by  the  two  brothers  in 
such  a  way  as  to  make  them  liable  as  partners  to  outsiders.  Of  course, 
it  does  not  follow  that,  because  two  persons  carry  on  a  business  in 
such  a  way  as  to  render  them  liable  as  partners  to  outsiders,  it  is  the 
necessary  consequence  that  they  are  partners  inter  se,  but  the  circum- 
stances may  be  such  as  to  show  that  they  were.  For  instance,  a  pub- 
lished statement  that  they  were  partners  would  be  strong  evidence  that 
they  were  so  for  all  purposes.  In  my  opinion,  a  statement  by  conduct 
comes  to  precisely  the  same  thing  if  you  arrive,  from  their  conduct,  at 
the  conclusion  that  they  have  held  themselves  out  to  the  world  as  part- 
ners. That  was  clearly  so  here,  and  I  think  it  is  evidence  of  an  agree- 
ment for  a  partnership.  I  do  not  wish  to  attach  too  much  weight  to  it, 
but  I  think,  in  the  absence  of  anything  to  the  contrary,  the  fact  that 
the  two  brothers  were  partners  to  some  extent  is  some  evidence  that 
the}-  were  partners  altogether. 

Again,  they  borrowed  money  on  mortgage  upon  two  occasions,  and 
put  it  mainly,  at  any  rate,  into  the  business.  The  special  case  shows 
that  there  were  joint  mortgages  by  the  two,  and  each  of  them  would 
be  liable  for  the  mortgage  money.  It  is  not  stated  that  each  brother 
mortgaged  his  own  interest  to  secure  the  mortgage  money,  but  that 
"  the  plaintiff  and  C.  F.  Davis  borrowed  £300  "  on  the  first  occasion 
and  a  similar  statement  is  made  as  to  the  second  borrowing.  I  infer 
from  that  that  they  were  joint  mortgagors,  jointly  liable  for  the  debt, 
and  that  each  was  chargeable  with  the  whole*  Therefore,  I  find  that 
they  jointly  borrow  money,  for  which  they  become  jointly  liable,  and 
that  they  put  the  money  so  borrowed  into  the  business  which  they 
carry  on  together.  I  think  that  is  an  indication  of  some  weight  that  a 
partnership  existed  between  them.  I  come,  therefore,  to  the  conclusion 
upon  the  act,  assisted  by  these  various  circumstances  which  I  have 
mentioned,  that  the  two  brothers  were  partners  as  regards  the  business. 

As  regards  the  land,  I  have  come  to  a  contrary  conclusion^'  It  is 
not  the  law  that  partners  in  business,  who  are  the  owners  of  the  prorr 


§  1.]  CONTRACT  NEED  NOT  BE  EXPRESS.  15 

erty  by  means  of  which  the  business  is  carried  on,  are  necessarily 
partners  as  regards  that  property.  That  conclusion  is  indeed  expressly 
negatived  by  sub-sect.  1  of  §  2  of  the  Act  of  L890,  and  there  are 
many  cases  before  the  act  to  the  same  etfect.  There  is  the  well  known 
case'of  Fromont  v.  Coupland.  2  Bing.  L703  in  which  two  persons  horsed 
a  coach,  and  shared  the  profits  derived  from  running  it,  and  were  held 
to  be  partners,  though  they  were  not  partners  in  the  horses  by  which 
the  work  was  done.  Take,  again,  the  well  known  case  of  the  ships 
owned  in  common.  Again,  there  is  the  case  of  Steward  v.  Blake  way, 
L.  R.  4  Ch.  603,  in  which  land  belonging  to  co-owners  as  tenants  in 
common  was  used  for  the  purpose  of  carrying  on  a  quarrying  business, 
but  that  of  itself  was  not  considered  sufficient  to  make  the  co-owners 
partners  in  the  land.  In  fact,  sub-sect.  1  of  §  2  of  the  act  seems  to 
me  conclusive,  unless  there  is  something  else  in  the  case,  that  the  two 
were  not  partners  in  the  land.  The  land  was  vested  in  them  as  tenants 
in  common,  each,  that  is  to  say,  being  owner  of  an  undivided  moiety  ; 
and  if  the  laud  became  partnership  property,  the  question  would  arise 
when  and  how  it  became  so,  and  there  is  no  evidence  that  anything 
was  done  by  agreement  to  make  the  land  partnership  property,  and  the 
facts  to  which  I  have  referred  as  supporting  the  view  that  there  was  a 
partnership  in  the  business  do  not  apply  to  the  land. 

There  are,  no  doubt,  cases  in  which  land  has  been  considered  to  have 
been  brought  into  a  partnership  by  reason  of  the  nature  of  the  business. 

In  Waterer  v.  Waterer,  L.  R.  15  Eq.  402,  two  persons  were  partners 
in  business  as  nursery  gardeners.  Lord  Justice  James,  in  giving  judg- 
ment, said  :  "  I  am  of  opinion  that  this  case  is  governed  by  that  class 
of  cases  in  which  Lord  Eldon  said  that  where  property  became  in- 
volved in  partnership  dealings  it  must  be  regarded  as  partnership  prop- 
erty. It  seems  to  me  immaterial  how  it  may  have  been  acquired  by 
the  surviving  partners,  whether  by  descent  or  devise,  if,  in  fact,  it 
was  substantially  involved  in  the  business.  ...  A  nursery  gardener's 
business  is  probably  one  above  all  others  where  men  would  act  as  these 
gentlemen  appear  to  have  done.  They  necessarily  appropriate  the 
soil  itself  for  gardening  purposes  which  could  not  be  carried  on  without 
it.  It  is,  in  fact,  in  nursery  gardening,  practically  impossible  to  sepa- 
rate the  use  of  the  soil  for  the  trees  and  shrubs,  from  the  trees  and 
shrubs  themselves,  which  are  part  of  the  freehold,  and  at  the  same 
time  constitute  the  substantial  stock-in-trade.  In  my  judgment,  there- 
fore, the  land  used  in  the  trade  is  part  of  the  partnership  property,  and 
therefore  personal  estate.  The  house  and  land  not  used  for  the  part- 
nership business,  but  let  to  tenants,  remain  real  estate."   .  .   . 

I  have  looked  at  many  other  cases  bearing  upon  this  point,  and  I 
have  found  several  other  instances  in  which  lands  have  been  held  to  be, 
to  use  the  words  of  Lord  Justice  James,  "involved  in  partnership 
dealings,"  and  therefore  regarded  as  partnership  property.   .   .  . 

In  my  opinion,  the  mere  fact  that  the  two  houses,  which,  according 


16  THE   FORMATION    OF   A   PARTNERSHIP.  [CHAP.  I. 

to  the  special  case,  were  not  more  fitted  than  any  others  for  the  carry- 
ing on  of  the  business,  were  used  for  it,  did  not  make  them  involved 
in  the  partnership  dealings  in  such  a  way  as  to  become  partnership 
property.     As  regards  the  mortgages,  it  must  be  borne  in  mind  that 
they  stand  on  exactly  the  same  footing :  one  comprised  houses  which 
were  used  for  the  partnership  business,  and  the  other  comprised  a  house 
and  land  which  were  not  used  for  partnership  purposes  at  all.     There- 
fore, I  do  not  think  the  mortgages  throw  any  light  upon  the  matter. 
The  only  remaining  fact  is,  that,  during  the  continuance  of  the  partner- 
ship between  the  brothers,  the}7  used  part  of  the  premises,  No.  60,  for 
partnership  purposes.     They  began  for  the  first  time  to  use  No.   60, 
Summer  Street,  for  the  partnership    purposes  in  October,  1889,  and 
the}7  spent  some   money  in   adapting  it  to  their  purposes,  and   that 
money  was  the  joint  money  of  the  two  brothers.     But,  in  my  opinion, 
that  is  not  enough  to  indicate  that  there  was  a  partnership  in  the  land. 
If  the  money  which  they  expended  in  adapting  this  additional  piece 
of  land  had  been  spent  in  buying  it,  instead  of  improving  it,  it  is  clear 
that  it  would  not  have  become  partnership  property ;  because,  in  that 
case,  it  would  have  been  hit  exactly  by  sub-sect.  3  of  §  20  of  the  Part- 
nership Act,  which  says  :  "  Where  co-owners  of  an  estate  or  interest  in 
land,  ...  not  being  itself  partnership  property,   are  partners  as  to 
the  profits  made  by  the  use   of  that  land  or  estate,  and  purchase  other 
land  or  estate  out  of  the  profits  to  be  used  in  like  manner,  the  land  or 
estate  so  purchased  belongs  to  them,  in  the  absence  of  any  agreement 
to  the  contrary,  not  as   partners,   but  as   co-owners  for  the  same  re- 
spective estates  and  interests  as  are  held  by  them  in  the  land  or  estate 
first  mentioned  at  the  date  of  the  purchase."     In  the  present  case,  the 
money  which  was  borrowed  was  not  employed  in  paying  for  the  addi- 
tional piece  of  land  which  was  brought  into  the  business  ;  if  it  had  been, 
the    case   would   have  been  exactly  within  that  sub-section;    but  the 
case  seems  to  me  so  like  that,  that,  although  it  is  not  literally  covered 
by  the  sub-section,  the  same  law  applies  to  it. 

Under  the  circumstances,  I  come  to  the  conclusion  that  there  was  a 
partnership  in  the  business,  but  that  none  of  the  houses  Nos.  60,  62, 
and  64,  Summer  Street,  were  partnership  property. 


OLIVER  v.  GRAY. 

4  Arkansas,  425.     1842. 


Oliver  sued  Gray  on  a  note;  the  latter  filed  an  account  against 
Oliver  for  $61.50.  To  prove  the  account  Gray  produced  an  agreement, 
under  seal,  by  which  it  was  stated  that  Oliver  had  sold  Gray  half  of  a 
certain  horse,  and  that  Gray  was  to  keep  him  for  eighteen  months, 
"  and  the  partners  Gray  and  Oliver"  were  to  pay  an  equal  portion  of 


§  1.]  WORDS    NOT   CONCLUSIVE.  17 

the  expense  of  the  horse  during  that  time.  He  then  proved  that  he 
had  kept  the  horse  for  the  time  charged  in  the  account,  and  that  the 
keeping  was  worth  the  price  charged.  The  account  was  received  and 
Gray  had  judgment  for  820  and  costs.     Oliver  brought  error. 

Trimble,  for  plaintiff  in  error.  , 

Pike  <0  Baldwin,  contra. 

Dickinson,  J.  The  plaintiff  in  error  insists  that  there  was  no  debt 
due  by  Oliver  to  Gray,  but  to  them  jointly  as  partners.  We  apprehend 
there  is  nothing  in  the  contract  constituting  them  partners.  There  is 
certainly  no  community  of  profit  and  loss  arising  out  of  their  agree- 
ment, 'it  amounts,  in  our  opinion,  to  a  mere  joint  interest  in  the  horse 
alojie,  and  an  agreement  on  the  part  of  Oliver  to  pay  Gray  one-half  of 
the  actual  expenses  incurred  in  keeping  him.  They  styled  themselves 
partneTs-4n-4he.  contract,  yet  the  nature  and  terms  of  the  agreement 
clearly  show  that  they  are  merely  part  owners.  Nicoll  v.  Mumford,  4 
J.  C. .  R.  522;  Ex  parte  Parry,  5  Ves.  575;  3  Kent's  Com.  16,  17. 
The  debt  accrued  to  Gray  in  his  individual  character;  and  as  it  was 
mutual,  and  subsisting  with  Oliver's  demand  against  him,  it  was  a  proper 
subject  of  set-off.  Judgment  affirmed. 


D  WIN  EL  v.  STONE. 
30  Me.  384.     1819. 

Shepley,  J.  The  defendant  was  summoned  as  trustee  in  a  suit  in 
favor  of  the  plaintiff,  against  Nathaniel  H.  Sawtelle,  and  suffered  a 
default  to  be  entered,  without  making  any  disclosure.  This  suit  is 
scire  facias,  against  him  as  such  trustee.  He  has  appeared  and  made 
a  disclosure  as  authorized  by  the  provisions  of  the  statute,  ch.  119, 
§  78,  and  has  been  adjudged  to  be  the  trustee  of  Sawtelle  for  a  certain 
amount.    The  case  is  presented  on  exceptions  taken  to  that  adjudication. 

It  is  contended  in  the  first  place,  that  he  cannot  be  liable  on  his  dis- 
closure, because  there  appears  to  have  been  a  partnership  between 
himself,  Sawtelle,  and  William  Spaulding,  in  the  business,  out  of  which 
his  indebtedness  arose. 

Partnerships  are  of  different  kinds.  Some  are  general,  and  others 
arc  limited  to  a  particular  business  or  to  one  transaction.  There  may 
be  a  partnership  embracing  a  capital  invested  in  the  business  and  also 
the  profit  and  loss  arising  out  of  it.  And  there  may  be  a  partnership 
embracing  only  the  profit  and  loss.  There  may  be  also  business  trans- 
actions, from  which  the  persons  concerned  may  receive  profits  and  be 
subjected  to  losses  ;  and  yet  there  may  be  no  partnership.  The  mere 
fact  of  a  participation  in  profit  and  loss  does  not  necessarily  constitute 
a  partnership.  Many  of  the  elements  constituting  one  may  exist,  while 
others  equally  essential  do  not. 

One  essential  clement  of  a  partnership  is  a  community  of  interest  in 

2       '  ' — 


18  THE   FORMATION   OF   A   PARTNERSHIP.  [CHAP.  I. 

the  subject  matter  of  it.  Tenet  totum  in  communi  et  nihil  separatim 
per  se  has  been  the  ke}T-stone  of  the  arch  since  the  days  of  Bracton. 
From  this  arises  the  right  of  each  partner  to  make  contracts,  incur 
liabilities,  manage  the  whole  business,  and  dispose  of  the  whole  property 
of  the  partnership,  for  its  purposes,  in  the  same  manner  and  with  the 
same  power  as  all  the  partners  could  when  acting  together. 

Another  element  is,  that  upon  a  dissolution  of  the  partnership  by  the 
death  of  one  of  the  partners,  the  survivors  become  entitled  to  retain 
and  dispose  of  the  partnership  effects  for  a  settlement  of  all  its  affairs 
and  for  a  distribution  of  the  remaining  fund.  However  the  arrange- 
ment of  business  may  assimilate  it  to  a  partnership,  if  it  be  such  that, 
on  the  death  of  one  interested,  this  becomes  impossible,  it  will  be  evi- 
dence that  there  was  no  proper  partnership  existing. 

B\T  the  application  of  these  rules  it  will  not  be  difficult  to  determine 
whether  a  partnership  proper  is  proved  to  have  existed  by  the  answers 
of  the  defendant.  Whether  one  existed  or  not,  is  an  inference  of  law 
from  the  facts ;  and  his  frequent  statements,  that  they  were  partners, 
can  have  no  effect.1 

It  appears  from  the  answers  that  a  written  permission  to  cut  and  haul 
logs,  from  township  numbered  six  in  the  eleventh  range  of  townships, 
was  made  by  Leonard  Jones  to  S.  Bood}*,  who  assigned  it  to  Sawtelle, 
who  at  the  same  time  assigned  it  to  the  defendant,  who  paid  fifty  dollars 
for  it  to  Bood}-  by  Cooper  &  Co.,  and  made  a  conditional  assignment  of 
it  and  of  the  timber  cut  under  it  to  Cooper  &  Co.,  as  security  for  the 
paj'ment  of  goods  furnished  by  them  for  the  operation.  He  says, 
"Sawtelle  made  no  advance  except  his  own  labor,"  which  shows  that 
no  capital  was  promised  or  advanced  on  their  joint  account.  The 
account  of  the  goods  thus  furnished  was  kept  in  such  manner  that 
"  Luther  Stone,  Telos,"  was  made  their  debtor.  Telos  was  the  name 
of  the  lake  into  which  the  logs  were  hauled.  All  orders  drawn  upon 
Cooper  &  Co.  appear  to  have  been  signed  b}-  the  defendant,  or  by  the 
name,  "  L.  Stone,  Telos."  The  defendant  states,  "It  was  understood 
between  me  and  Cooper,  that  the  business  was  to  be  done  agreeablj'  to 
the  assignment,  which  was  in  my  name."  He  states  that  he  has  no 
recollection  that  there  was  any  understanding  between  himself,  Sawtelle, 
and  Spaulding,  whose  name  "  the  concern  should  be  in  ;  "  that  "  Saw- 
telle, Spaulding,  and  I  finally  agreed  to  take  said  permit  and  go  on 
with  the  operation  as  partners,  sharing  profit  and  loss."  "  Sawtelle 
had  no  interest  except  as  partner."  It  is  therefore  apparent  that 
"  Luther  Stone,  Telos,"  was  not  used  or  agreed  to  be  used  as  the  name 
of  a  partnership,  for  he  states  that  his  co-operators  made  no  agree- 
ment respecting  it,  and  that  he  agreed  with  Cooper  &  Co.  that  the 

1  Counsel  for  defendant  had  argued  that  his  undisputed  statement  that  Saw- 
telle, Spaulding,  and  he  agreed  to  be  partners,  intended  to  he  partners,  acted  as  part- 
ners, and  were  understood  by  those  dealing  with  them  to  be  partners,  must  be  taken  to 
be  true,  and  established  the  existence  of  a  partnership,  unless  the  plaintiff  could  show 
that  they  were  mistaken  as  to  what  a  partnership  was. 


§  1.]  WORDS   NOT   CONCLUSIVE.  19 

business  should  be  clone  in  his  name.     The  account  is  in  effect  the 
same  as  it  would  be  if  Telos  was  not  annexed  to  it. 

These  answers  dearly  show  that  the  defendant  alone  paid  for  the 
permit,  the  amount  paid  for  it  being  charged  to  him  ;  that  the  title  to 
it,  and  to  the  lumber  cut  under  it,  was  in  him  alone,  subject  to  the  title 
of  Cooper  &  Co.,  as  mortgagees.  There  could,  therefore,  be  no  com- 
munity of  interest  between  the  defendant,  Sawtelle,  and  Spaulding  in 
the  capital  upon  which  the  labor  was  performed  and  the  business 
transacted.  The  labor  was  performed  upon  the  lumber,  and  its  price 
or  v«i«e^became  immediately  incorporated  with  it.  There  were  no 
funds,  no  effects,  no  means,  for  profit  and  loss  separate  from  the  lum- 
ber or  capital.  There  could,  therefore,  be  no  profit  and  loss,  or  interest 
separate  from  the  capital,  in  which  there  was  a  community  of  interest, 
and  which  could  constitute  a  partnership  proper. 

No  one  but  the  defendant  could  have  disposed  of  anything  pertain- 
ing to  the  business.  If  he  had  deceased,  there  would  have  been  no 
property  or  effects  so  situated  that  the  survivors  could  have  made 
an}*  use  or  disposition  of  it  to  settle  the  business,  and  to  obtain  pay- 
ment for  their  labor  by  a  distribution  of  the  surplus.  The  personal 
representative  of  the  defendant  must  have  adjusted  the  whole  business, 
and  Sawtelle  and  Spaulding  must  have  received  from  him  their  share 
of  the  profits  realized  upon  a  close  of  the  whole  business,  b}"  wa}*  of 
compensation  for  services  performed  for  him.  There  was,  therefore, 
no  partnership  proper  existing  between  them. 

The  transaction  was  similar  in  principle  to  that  of  a  common  enter- 
prise for  profit  and  loss,  which  does  not  constitute  a  partnership, 
although  it  may  combine  some  of  its  elements.  As  in  the  case  of 
Dreg  v.  Boswell,  1  Camp.  329f  where  the  owner  of  a  lighter  agreed 
with  a  person  to  work  in  it,  and  to  divide  with  him  the  profit  and  loss. 
Or  as  in  the  case  of  Hesketh  v.  Robinson,  4  East,  144,  where  goods 
were  purchased  on  the  credit  of  one  to  be  transported  and  sold  b}' 
another,  under  an  agreement  to  divide  the  profits.  Or  as  in  case  of  a 
shipment  of  specie  or  timber,  upon  an  agreement  to  divide  the  profits. 
Rice  v.  Austin,  17  Mass.  205.  Or  as  on  an  adventure  in  a  whaling 
voyage,  or  in  a  contract  of  "  mateship,"  where  there  is  an  agree- 
ment to  share  the  profits.  Baxter  v.  Rodman,  3  Pick.  435.  Or  as  in 
the  manufacture  of  goods  from  the  raw  material,  under  an  agreement 
to  share  the  net  profits.  Denn}-  v.  Cabot,  6  Mete.  82  ;  Loomis  v. 
Marshall,  12  Conn.  G9.  Or  it  ma}',  perhaps,  in  principle,  be  more 
like  the  case  of  Finckle  v.  Stacey,  Sel.  Ca.  9,  where  two  persons 
agreed  to  do  a  job  of  work  on  joint  account.  In  such  case,  they 
must  share  in  the  profit  and  loss,  and  yet  they  were  not  regarded 
as  partners.   .  .  . 

Exceptions  overruled. 


20  the  formation  of  a  partnership.  [dlap.  l 

§  2.     Specific  Intent  to  form  Partnership  not  Essential. 

GREEN  v.   BEESLEY. 

2  Bing.  N.  C.  108.     1S35. 

The  declaration  stated  that  on  the  29th  of  January,  1827,  it  was 
agreed  between  the  plaintiff  and  the  defendant  as  follows  :  viz.,  the 
said  plaintiff  agreed  to  horse  (that  is  to  say),  to  convey  by  horse  and 
cart  the  mail  from  Northampton  to  Brackley,  and  back  again  from  the 
latter  place  to  Northampton,  punctually  and  within  the  time,  as  near  as 
might  be,  to  be  paid  for  such  performance  at  and  after  the  rate  of  £9 
sterling  per  mile  per  annum  ;  and  the  defendant  agreed  to  pay  or  cause 
to  be  paid  unto  the  plaintiff  the  sum  of  £9  per  mile  per  annum  (rat- 
able) ,  the  same  to  be  paid  at  the  expiration  of  each  quarter  of  a  year, 
from  the  commencement  of  the  said  agreement ;  provided  always,  that 
the  said  agreement,  in  that  and  every  subsequent  article,  should  be 
punctually  and  properly  fulfilled.  And  it  was  further  agreed  on  the 
part  of  the  plaintiff  to  pay  for  one  cart,  then  in  use  for  the  above  pur- 
pose, the  sum  of  £18,  the  same  to  be  paid  into  the  hands  of  the  defend- 
ant forthwith.  And  the  plaintiff  further  agreed  to  pa}'  for,  in  a  fair 
proportion  with  the  defendant,  all  repairs  or  replacing  of  carts,  so  long 
as  that  agreement  should  be  in  force.  It  was  also  agreed  that  the 
moneys  received  for  the  conveyance  of  all  packages  or  parcels  should 
be  fairly  and  equally  divided  between  the  two  parties,  each  bearing  an 
equal  portion  of  the  loss,  if  any,  occasioned  by  loss  or  damage  of  such 
or  any  such  packages  or  parcels.  .  .  .  The  plaintiff  then,  after  aver- 
ring mutual  promises  and  performance  of  the  stipulations  of  the  en- 
gagement on  his  part,  .  .  .  alleged,  as  a  breach  by  the  defendant,  the 
non-payment  of  the  sum  of  £9  per  mile  per  annum,  ratable,  at  the 
expiration  of  each  quarter  of  a  j'ear ;  and  that  the  defendant  had  not, 
since  the  making  of  the  said  agreement,  fairly  and  equally  divided 
between  himself,  the  defendant,  and  the  plaintiff,  the  moneys  received 
by  the  defendant,  for  the  conveyance  of  packages  and  parcels. 

Demurrer  and  joinder. 

J.  J3.  Harrison,  for  defendant. 

3fereieether,  Serjt.,  for  plaintiff. 

Tindal,  C.  J.  In  this  declaration  there  are  two  breaches :  the  first, 
on  the  defendant's  non-payment  of  £9  per  mile  per  annum  to  the  plain- 
tiff, for  horsing  the  mail-cart  from  Brackley  to  Northampton  ;  the  sec- 
ond, for  not  dividing  between  the  plaintiff  and  defendant  moneys 
received  b}r  the  defendant  for  the  conveyance  of  parcels. 

As  to  the  first,  if  it  had  not  been  connected,  hy  the  terms  of  the 
agreement,  with  the  subsequent  stipulation  for  dividing  the  profits 
arising  from  the  carriage  of  parcels,  it  would  have  been  a  demand  on 
which  the  plaintiff  would  have  been  clearljr  entitled  to  recover ;  but  it 
is  impossible  not  to  see  that  this  £9  per  mile  was  not  to  be  paid  at  all 


§  3.]  A   COMMON    BUSINESS    WITH    A   VIEW   OF   PROFIT.  21 

events,  but  only  upon  taking  the  balance  of  the  whole  account  between 
the  parties  ;  for  it  is  to  be  paid,  "  provided  always  that  the  said  agree- 
ment in  that  and  every  subsequent  article  should  be  punctually  and 
properly  fulQlled."  The  payment,  therefore,  accrues  not  on  an  abso- 
lute, but  on  a  conditioual-agi'icmtiit ,  namely,  the  [JLlutlual  pprthrm- 
aacs-of— tbe-efcipulatio.ns  subsequently  set  out:  and  according  to  those 
stipulations  the  plaintiff  and  defendant  are  partners  in  profit  and  loss  ; 
for  it  is  agreed  that  "the  mone\-s  received  for  the  conveyance  of  all 
packages  or  parcels  should  be  fairly  and  equally  divided  between' the 
two  parties,  each  bearing  an  equal  portion  of  the  loss,  if  any,  occa- 
sioned by  loss  or  damage  of  such  or  any  such  packages  or  parcels." 
And  I  have  always  understood  the  definition  of  partnership  to  be  a 
mutual  participation  in  profit  and  loss.  The  payment  of  the  £9  per 
mile,  therefore,  depending  on  the  observance  of  all  the  stipulations  be- 
tween the  parties,  draws  down  to  itself  the  rest  of  the  agreement,  which 
constitutes  a  partnership  concern,  and  renders  it  impossible  to  separate 
~the  first  breach  from  the  entire  agreement. 

Park,     Gaselee,     and     Bosaxquet,     JJ.,     delivered     concurring 
opinions. 

Judgment  for  defendant. 


§  3.     A  Common  Business  with  a  View  of  Profit. 

HELME  v.   SMITH. 

7  Bing.  709.     1831. 

This  was  an  action  by  the  plaintiff,  as  part  owner  and  managing 
owner  of  the  ship  "  Brailsford,"  against  the  defendant,  another  part 
owner  of  the  same  ship,  for  his  portion  of  the  balance  due  to  the 
plaintiff  for  the  outfit  of  the  ship  for  several  voyages.  The  arbitrator 
awarded  and  adjudged  that  the  plaintiff  do  recover  against  the  defend- 
ant the  sum  of  £462  8s.  Gd.,  being  the  balance  due  at  the  time  of  the 
commencement  of  the  suit  from  the  defendant,  as  owner  of  one-fourth 
part  of  the  ship  "Brailsford"  to  the  plaintiff  as  such  part  owner 
thereof,  for  the  share  of  the  defendant  of  the  expenses  incurred  and 
paid  by  the  plaintiff  as  managing  owner  or  ship's  husband,  for  the 
outfit  of  the  said  ship  for  four  several  voyages. 

Wilde,  Serjt.,  having  obtained  a  rule  nisi  to  enter  up  judgment  for 
the  plaintiff  for  £402  8s.  6<L,  pursuant  to  the  award, 

Jones,   Si  rjt .,  showed  cause. 

Tindal,  C.  J.  On  looking  at  this  award,  the  question  arises, 
whether  an  action  will  lie  by  one  part  owner  of  a  ship  against  an- 
other for  his  share  of  the  expenses  of  outfit. 

If,  indeed,  the  plaintiff  and  defendant  were  partners,  there  is  an  end 
Of  the  question  ;  but  part  owners  of  a  shjp  nvo  not,  npppucii-iliT  |>aut. 
Hers.      If  the  parties  had  laid  out  money  on  a  singulation  in  <ii, 


22  THE   FORMATION    OF   A    PARTNERSHIP.  [CHAP.  I. 

the  proceeds  to  be  divided  on  the  ship's  return,  they  would  have 
been  partnej^^n  every  sense  ;  but  there. is  jiothing  hereto,  show, that 
they  were  more  than  part  owners~*,~and  the  question  is,  whether,  if  one 
lays  out  money  to  enable  the  ship  to  proceed,  he  may  not  sue  each_ 
of  the  owners  for  his  share  of  the  expense.  There  is  nothing  to  show 
that  the  plaintiff's  claim  was  to  depend  on  the  profits  of  the  voyage, 
or  that  he  was  to  be  deprived  of  remuneration  if  the  voyage  turned 
out  to  be  without  profit.  The  outfit  was  a  portion  of  the  capital  which 
each  was  to  advance,  and  if  the  plaintiff  had  lent  either  of  the  part 
owners  the  capital  he  was  to  contribute,  that  would  clearly  have 
formed  the  ground  of  a  separate  claim.  It  might  have  been  otherwise, 
if,  by  the  course  of  trade,  it  were  the  custom  for  a  ship's  husband  to 
look  to  the  returns  of  the  ship  for  the  payment  of  his  bill ;  but  no 
such  custom  is  stated  on  the  award,  nor  anything  to  show  that  the 
plaintiff  and  defendant  were  partners. 

Mule  absolute.1 


FRENCH  v.   STYRING. 

2  C.  B.  n.  s.  355.     1857. 

The  plaintiff  was  a  trainer  of  horses  at  Newmarket ;  the  defendant 
was  a  wine-merchant  at  Huddersfield.  In  the  month  of  March,  1854, 
a  race-horse,  called  Census, was  jointly  purchased  by  the  plaintiff  and 
one  Cohen.  The  latter  afterwards  sold  his  share  of  the  horse  to  one 
Mallinson  ;  and  it  was  agreed  between  Mallinson  and  the  plaintiff  that 
the  plaintiff  should  keep  the  horse  for  the  purpose  of  training  him, 
and  should  have  the  entire  control  and  management  of  him  ;  that  35s. 
per  week  should  be  allowed  as  the  expenses  of  his  keep  ;  that  the 
plaintiff  should  pay  the  expenses  of  entering  the  horse  and  conveying 
him  to  the  different  races  ;  that  each  of  them  should  pay  one-half  of 
the  horse's  keep  and  other  expenses ;  and  that  the  winnings  should 
be  equally  divided  between  them.  Mallinson  having  subsequently 
sold  his  share  of  the  horse  to  the  defendant,  the  latter  agreed  with 
the  plaintiff  that  he  should  continue  to  keep,  train,  and  manage  him 
upon  the  same  terms  as  had  been  agreed  on  with  Mallinson.  The 
horse  was  entered  and  ran  at  several  races,  but  never  won  anything, 
and,  having  ultimately  broken  down,  was  sold  at  Tattersall's  for  £20. 
The  plaintiff  now  sought  to  recover  from  the  defendant  £165  lis.  KM, 
being  the  moiety  of  the  keep  and  expenses  of  the  horse  since  the  de- 
fendant became  possessed  of  his  moiet}T,  allowing  in  the  particulars 
credit  for  £10,  the  moiet}'  of  the  sum  for  which  the  horse  was  sold. 
There  had  been  no  previous  settlement  of  accounts  between  the  parties. 
On  the  part  of  the  defendant,  it  was  submitted  that  this  community 

1  A   part  of  the  statement  and   the  concurring  opinions  of  Park,  Gaselee,  and 
Bosanquet,  JJ.,  have  been   omitted. 


§  3.]  A   COMMON    BUSINESS    WITH    A    VIEW    OF    PROFIT.  23 

of  profit  and  loss  constituted  a  partnership  between  the  plaintiff  and 
defendant,  and  therefore  that  the  plaintiff  could  not  recover  in  a  court 
of  law  in  respect  of  the  claim  set  up  in  the  second  count. 

The  learned  judge  directed  a  verdict  for  the  plaintiff  for  the  amount 
claimed,  reserving  to  the  defendant  leave  to  move  to  reduce  the 
damages  by  the  sum  mentioned  in  the  second  count,  if  the  court  should 
be  of  opinion  that  the  transaction  created  a  partnership. 

Atherton,  Q.  (•'.,  obtained  a  rule  nisi. 

11  nek  in*  showed  cause. 

Willes,  J.  The  agreement  here  amounts  to  the  sort  of  tenancy  in 
common  mentioned  in  the  section  of  Littleton  to  which  I  referred  in 
the  course  of  the  argument.  The  effect  of  the  agreement  seems  to  be 
this,  that  the  plaintiff  should  keep  and  train  and  have  the  exclusive 
management  of  the  horse,  entering  it  and  conveying  it  to  the  different 
races,  and  doing  everything  necessary  to  put  it  in  a  condition  to  run, 
and,  in  the  event  of  the  horse  winning,  paying  over  to  the  defendant 
one-half  of  the  amount  of  such  winnings.  It  in  truth  amounts  to  no 
more  than  a  contract  between  two  tenants  in  common,  whereby  the 
one  agrees,  in  consideration  of  certain  things  to  be  done  by  the  other, 
to  abstain  from  exercising  his  rights  in  respect  of  the  chattel  held  by 
them  in  common.  It  is  no  more  a  partnership  than  if  two  tenants  in 
common  of  a  house  agreed  that  one  of  them  should  have  the  general 
lnaTnTgement,  and~provide  funds  for  necessary  repairs,  so  as  to  render 
the  house  lit  for  the  habitation  of  a  tenant,  and  that  the  net  rent 
should  be  divided  between  them  equally.  Even  if  this  were  to  be 
looked  upon  as  a  contract  of  partnership,  the  point  at  which  the 
partnership  would  necessarily  commence  is  that  at  which  the  horse  is 
put  upon  the  turf  in  a  condition  to  run  for  stakes.  The  payments 
sought  to  be  rg^gred  here  are  paynaen^  ^j^J^tMl^  pl-iinritf  in 
the  natur^of^orvances  onJbeiia1f  nf  *h p  defendant  anterior  to  the  time  Da^J^ 
at  which  any  partnership  could  commence.  Without  expressing  any  j 
decided  opinion  upon  the  first  point,  upon  the  second  ground  1  concur 
with  the  rest  of  the  court  in  thinking  that  the  plaintiff  is  entitled  to 
recover  upon  the  second  count  as  well  as  upon  the  first,  and  therefore 
that  the  rule  to  reduce  the  damages  must  be  discharged. 

Hide  discharged.1 


J 


GOELL  v.   MORSE  et  al. 

126  Mass.  480.     1879. 

Tort  for  the  conversion  of  one-half  of  a  horse.     Answer,  a  general 

denial. 

The  defendant  Willis,  before  purchasing  the  horse  in  question,  in- 
formed the  plaintiff  that  the  horse  was  for  sale  for  $350,  and  proposed 

i  The  < .pinions  of  CoCKBUBK,  C.  J.,  and  of  Cresswell  and  CboWDBB,  JJ.,  hav* 

been  omitted.     Sec  Littleton,  §  221. 


24  THE  FORMATION  OF  A  PARTNERSHIP.       [CHAP.  I. 

that  the  plaintiff  should  join  him  in  the  purchase  of  the  horse  on  specu- 
lation, and  after  seeing  the  horse,  the  plaintiff  agreed  to  do  so.  There- 
upon Willis  purchased  the  horse  on  January  11,  1873,  and  the  plaintiff 
gave  Willis  $150,  and  received  a  receipt  therefor.  The  plaintiff  and 
Willis  then  agreed  that  either  of  them,  having  possession  of  the  horse, 
should  provide  for  his  keeping,  without  cost  to  the  other,  and  that  each 
should  offer  him  for  sale  and  endeavor  to  procure  a  purchaser  at  a 
profit  over  his  cost,  but  that  neither  should  sell  the  horse  without  the 
concurrence  of  the  other.  Under  this  agreement,  the  horse  was  some- 
times in  the  plaintiff's  possession  and  sometimes  in  Willis's  possession, 
was  advertised  and  exhibited  for  sale  by  them  severally,  and  kept  at 
the  cost  of  each,  as  he  happened  to  have  possession  of  him.  On  or 
about  November  7,  1875,  the  horse,  having  been  placed  by  Willis  in 
the  stable  of  the  defendant  Morse  in  July  previous,  and  the  cost  of  his 
keeping  having  become  large  and  beyond  the  ability  of  Willis  to  pay, 
was  sold  to  Morse  by  authority  of  Willis  for  S3 75,  out  of  which  Morse 
retained  the  cost  of  the  horse's  keeping,  and  paid  the  balance,  in  furni- 
ture and  cash,  to  Willis.  No  part  of  the  proceeds  of  such  sale  was  paid 
to  the  plaintiff,  or  accounted  for  to  him,  and  the  sale  was  made  without 
the  knowledge  or  consent  of  the  plaintiff,  and  without  any  reservation 
as  to  his  half  interest  in  the  horse.  After  the  sale  and  before  bringing 
this  action,  the  plaintiff  demanded  the  horse  of  Morse,  and  Morse  re- 
fused to  deliver  him.  .   .   . 

The  defendants  asked  the  judge  to  rule  as  follows :  ..."  (2)  The 
facts  disclose  a  partnership  between  the  plaintiff  and  Willis,  to  own 
and  hold  the  horse  on  joint  account,  for  the  purpose  of  speculation,  and 
the  plaintiff  cannot  maintain  a  count  in  contract  against  Willis,  without 
an  allegation  that  the  partnership  matters  had  been  closed  up  and  an 
ascertained  balance  found  due."  .  .  .  The  judge  refused  so  to  rule ; 
found  for  the  plaintiff;  and  ordered  judgment  for  him  for  one-half  of 
the  price  for  which  the  horse  was  sold,  with  interest  from  the  date  of 
the  sale.     The  defendants  alleged  exceptions. 

C.  Sewatt,  for  defendants. 

S.  Lincoln,  Jr. ,  for  the  plaintiff. 

Lord,  J.  There  can  be  no  doubt  of  the  correctness  of  the  ruling  of 
the  Chief  Justice  of  the  Supreme  Court.  The  plaintiff  and  Willis  were 
the  owners  as  tenants  in  common  of  the  horse.  The  facts  show  con- 
clusively that  the  transaction  did  not  constitute  a  partnership,  in  refer- 
ence to'the  title  to  the  horse.  The  mode  of  using  and  the  expense  of 
keeping  are  conclusive  upon  this  point.  Being  thus  tenants  in  com- 
mon, neither  party  had  any  lien  upon  the  share  of  the  other  for  ex- 
penses incurred,  either  for  labor  done  upon  the  horse  as  by  shoeing, 
or  for  advertising  him  for  sale,  and  Morse  had  no  lien  upon  him  for  the 
keeping.  Goodrich  v.  Willard,  7  Gray,  183.  Even  if  there  had  been 
a  lien,  no  step  had  been  taken  to  enforce  it.  The  facts  find  an  express 
agreement  that  "  neither  party  should  sell  the  horse  without  the  concur- 
rence of  the  other."    The  sale  by  Morse,  by  the  authority  of  Willis,  was 


§  3.]  A   COMMON    BUSINESS   WITH    A    VIEW    OF    PROFIT.  25 

a  conversion  of  the  part  of  the  horse  owned  by  the  plaintiff.  The  sale 
was  by  the  concurrent  action  of  both  defendants,  and  was  in  itself  a 
conversion  without  the  subsequent  demand  which  was  proved. 

Exceptions  0V(  rruhd. 


QUACKEXBUSH   v.    SAWYER. 

54  Cal.  439.     18S0. 

McKee,  J.  We  do  not  regard  the  action  in  this  case,  as  does  coun- 
sel for  the  appellant,  as  an  action  for  the  settlement  of  a  partnership 
account. 

In  substance  it  is  alleged,  in  the  complaint  in  the  case,  that  the 
parties  had  severally  advanced  certain  sums  of  money  in  purchasing  the 
"circus  property"  mentioned  in  the  complaint;  that  they  then  entered 
into  an  agreement  that  the  defendant  should  take  and  keep  possession 
of  the  property,  and  cause  it  to  be  used  and  employed  by  circus  com- 
panies or  managers  for  the  joint  benefit  of  himself  and  the  plaintiff  in 
equal  shares  ;  that  in  using  or  employing  it  for  this  purpose,  he  should 
make  provision  that  the  "  rent  or  compensation  "  receivable  for  the  use 
of  the  property  should  be  first  paid  to  him,  and  that,  upon  collecting  or 
receiving  such  "  rent  or  compensation  "  he  should  account  therefor,  and 
pay  it  over  every  month  to  the  plaintiff,  until  the  money  which  plaintiff 
had  advanced  for  the  purchase  of  the  property,  and  interest  thereon 
from  the  time  of  its  advancement,  should  be  paid  ;  and  after  such 
payment,  defendant  should  account  for,  and  pay  over  to  the  plaintiff, 
one-half  of  said  rent  or  compensation.  And  it  is  charged  that  the 
defendant  received  as  "  rent  or  compensation"  for  the  use  of  the  prop- 
erty, large  sums  of  money,  of  the  amount  of  which  plaintiff  is  ignorant, 
and  he  prays  for  an  accounting  and  division  of  the  property. 

Each  allegation  of  the  complaint  is  specifically  denied  by  the  answer, 
and  a  special  defence  is  also  set  up.  The  proofs  on  the  trial  establish 
these  facts  :  That  in  June,  1873,  one  Conklin  was  owner  of  the  "  circus 
property  "  mentioned  in  the  pleadings,  and  manager  of  a  certain  troupe 
or  company  of  circus  performers  ;  that  by  a  bill  of  sale  Conklin  trans- 
ferred the  property  to  the  parties  in  this  action,  as  security  for  the 
payment  to  them  of  certain  sums  of  mone}',  which  they  had  severally 
advanced  to  him.  That  they  agreed  with  each  other  that  defendant 
should  take  possession  of  the  propert}',  and  transport  it  from  place  to 
place  in  the  State  of  California,  upon  a  performing  tour,  and  receive  or 
collect  the  income  of  the  performances,  and  apply  it,  first  of  all,  to  the 
payment  of  money  advanced  by  the  plaintiff,  and  then  to  the  payment 
of  what  he  himself  had  advanced  to  Conklin. 

Pursuant  to  this  agreement,  defendant  took  possession  of  I  In-  prop- 
erty; and,  being  a  teamster,  made  a  contract  with  Conklin  for  tho 
transportation  of  the  property,  during  the  summer  season  of  187:5,  from 


26  THE   FORMATION    OF   A   PARTNERSHIP.  [CHAP.  I. 

place  to  place  in  the  State  of  California,  on  a  performing  tour  under 
the  direction  of  Conklin.  Performances  were  given  in  various  interior 
towns  and  cities  of  the  State,  at  which  the  defendant  collected  or 
received  $4,200  ;  but  he  has  failed  and  refused  to  account  for  or  pay  to 
the  plaintiff  any  portion  thereof.  Upon  these  proofs  the  court  below 
rendered  judgment  against  the  defendant  for  the  amount  of  money 
advanced  by  the  plaintiff  to  Conklin,  and  interest  thereon  from  the  date 
of  its  advancement. 

The  bill  of  sale  to  the  parties  made  them  owners  of  the  property, 
Heyland  v.  Badger,  35  Cal.  404  ;  but  a  mere  joint  ownership  in  personal 
property  does  not  constitute  the  owners  partners.  Post  v.  Kimberly, 
9  Johns.  470  ;  Hawes  v.  Tillinghast,  1  Gray,  289.  Nor  did  the  agree- 
ment between  them  have  that  effect.  A  partnership  is  the  association 
of  two  or  more  persons  for  the  purpose  of  carrying  on  business  to- 
gether, and  dividing  its  profits  between  them.  §  2,235  Civ.  Code. 
But  plaintiff  and  defendant  were  not  engaged  in  the  circus  business, 
nor  did  they  agree  to  carry  it  on.  The  business  belonged  to  Conklin 
alone  ;  and  in  it  the  defendant  used  the  joint  property  of  himself  and 
the  plaintiff  —  as  he  was  authorized  to  use  it  in  the  business  of  any  other 
circus  manager —  upon  the  terms  and  conditions  that  he  was  to  receive 
the  income  of  the  business  from  Conklin,  for  the  payment  of  their  claims 
against  Conklin.  Only  to  the  extent  of  the  income,  or,  as  the  pleader 
calls  it,  "  rent  or  compensation,"  receivable  by  the  defendant,  were 
they  at  all  interested  in  the  business  ;  but  an  agreement  to  divide  the 
income  of  a  business  does  not  create  a  partnership  ;  therefore,  when  the 
defendant  received  the  income,  he  did  not  receive  it  as  a  partner,  but 
as  a  trustee ;  and  he  held  so  much  of  it  as  was  necessary  to  pay  the 
plaintiff's  demand  against  Conklin  in  trust  for  that  purpose,  and  it  was 
his  duty  to  account  for  it  to  the  plaintiff;  failing  in  that,  the  plaintiff 
had  a  right  to  compel  him  to  account  for  so  much  of  it  as  came  into  his 
hands  for  the  purpose  of  discharging  his  trust. 

The  character  of  the  agreement  between  them,  as  set  forth  in  the 
complaint,  and  that  proved  at  the  trial,  made  an  account  necessar3'  to 
determine  the  respective  rights  of  the  parties.  Gar  v.  Redman,  6  Cal. 
576.  And  while  there  is  some  difference  between  the  agreement  as 
stated  in  the  complaint,  and  that  proven  at  the  trial,  yet  the  variance 
is  not  material.  It  is  one  which  could  not  have  misled  or  surprised  the 
defendant  to  his  prejudice  in  maintaining  his  defence  upon  the  merits. 
Code  Civ.  Proc.  §469  ;  Peter  v.  Foss,  20  Cal.  590  ;  Regan  v.  O'Reilly, 
32  Ind.  14  ;  Woolcott  v.  Meach,  22  Barb.  321.  Ross,  J.,  and  McKin- 
stry,  J.,  concurred. 

Judgment  affirmed* 


§  3.]  A   COMMON    BUSINESS    WITH    A    VIEW    OF    PROFIT.  27 


FARRAND   v.  GLEASOX. 

56  Vt.  633.     1884. 

Ross,  J.     Was  the  relation  between  the  orator's  intestate  and  de- 
fendant that  of  partners  or  of  tenants  in  common?     This  is  the  first 
question  to  be  determined.     The  orator  contends  that  it  was  that  of 
partners,  and  the  defendant,  that  of  joint  tenants  or  tenants  in  com- 
mon.    The  defendant  does  not  seriously   insist  that  they  were  joint 
tenants.     Their  relation  is  manifestly  to  be  determined  from  the  con- 
tracts of  March  1,  1876,  and  of  July  17,  1877,  and  their  dealings  with 
each  other  in  regard  to  the  subject  matter  of  said  contracts.     The  sub- 
ject of  the  contracts  was  real  estate.     Doubtless  a  partnership  might 
exist  for  dealing  in  real  estate.     Such  partnerships  are,  however,  un- 
usual.    One  of  the  usual  elements  of  a  partnership  consists  in  clothing 
each  partner  with  full  power  to  buy  and  sell  the  partnership  property. 
A  perfect  sale  implies  that  which  alone  in  real  estate  transactions  can 
make   the   sale   effective  —  a   conveyance.      It   is   evident   that   each 
partner  in  a  partnership  in  regard  to  real  estate  cannot  be  clothed  with 
the  power  of  making  a  perfected  sale  thereof.     From  the  nature  of  the 
property,  the  title  must   be  vested   either  in  one  or  more  or  all  the 
partners.     Those  holding  the  title  alone  can  convey  real  estate.     From 
its  nature,  and  the  legal  requirements  in  regard  to  conveying  title  to 
it,  real  estate  alone  has  rarely  been  the  sole  subject  matter  of  a  partner- 
ship.    It  is  frequently  held  by  the  partners  as  partnership  property, 
when  necessary  for  the  proper  transaction  of  the  partnership  business, 
or  when  taken  in  payment  of  partnership  debts,  or  purchased   with 
partnership  funds.     Then,  for  the  purpose  of  closing  the  partnership 
or  paying  partnership  debts,  it  is  frequently  treated  as  personal  prop- 
erty.    1  Pars.  Con.  ch.  12,  §  2.     Mr.  Washburn,  in  his  work  on  Real 
Property,  vol.  I.,  p.  422,  says  :  "  Independent  of  the  rights  of  creditors, 
such  estate  will  be  held  b}r  the  owners   as  tenants  in  common,  with  all 
the  incidents  of  such  estate."     The  partners  were  at  common  law  never 
treated  as  joint  tenants  of  such  real  estate.     It  partook  of  the  character 
of  stock  in  trade,  held  subject  to  the  hazard  of  profit  or  loss.     By  the 
law  merchant,  the  right  of  survivorship,  or  jus  accrescendi,  did  not 
attach  to  such  real  estate.     Co.  Lit.  182,  a.     Hence,  from  the  nature  of 
the  property,  the  limitations  of  the  agency  of  each  partner  in  making 
a  perfected  sale,  courts  are  not  inclined  to  imply  a  partnership  where 
the  subject  matter  is  real  estate  alone.     Looking  into  the  contracts  of 
March  1,    187G,  and  July  17,    1877,  nothing  is  found  indicative  of  a 
clear  intention  to  form  a  partnership.     No  partnership,  nor  partnership 
name,  nor  partnership  business,  nor  capital  is  agreed  upon.    The  parties 
agree  to  purchase  certain  property  and  fit  it  up  for  certain  purposes, 
and  to  be  at  equal  expense  in  doing  it,  and  to  share  equally  the  profits 
that  may  arise  from  selling  or  leasing  the  property.     The}-  do  not  con- 
template the  carrying  on  of  any  business  upon,  or  in  connection  with, 


28  THE   FORMATION    OF   A   PARTNERSHIP.  [CHAP.  L 

the  property  so  to  be  purchased.  Each  was  in  his  own  way  to  fur- 
nish his  share  of  the  funds  necessary  to  accomplish  the  purposes  of 
the  contracts.  In  fitting  up  the  property,  as  required  and  contem- 
plated by  the  contract  of  March  1,  1876,  each  bought  upon  his  indi- 
vidual credit.  He  had  no  right  to  pledge,  and  did  not  attempt  to 
pledge,  the  credit  of  the  three  for  such  purchases.  The  contract  of 
July  17,  1877,  recognizes  the  fact  that  they  have  not  contributed 
equally  to  the  purchase  and  fitting  up  of  the  propert}*,  that  their  con- 
tributions have  been  made  as  individuals,  and  gives  the  larger  con- 
tributor or  contributors  thereto  a  lien  upon  the  share  of  smaller 
contributor  or  contributors,  and  provides  that  the  first  profits  shall  be 
applied  to  equalizing  the  several  shares.  It  speaks  of  the  several 
owners  as  shareholders  and  not  as  partners.  All  the  provisions  of 
these  contracts,  as  well  as  all  the  conduct  of  the  parties,  are  consistent 
with  a  tenancy  common  in  the  property,  while  they  lack  many  of 
the  distinctive  elements  and  characteristics  of  a  partnership  therein, 
if  not  absolutely  inconsistent  therewith.  We  think  that  the  defendant's 
contention  must  prevail  in  regard  to  the  relation  of  the  orator's  intes- 
tate to  the  defendant  and  the  property  in  question,  under  these  con- 
tracts, and  the  interpretation  put  upon  them  by  the  conduct  of  the 
parties.  .  .  . 

Decree  reversed} 


CHERRY  v.    STRONG. 

96  Ga.  183 :  22  S.  E.  707.     1895. 

Lumpkin,  J.  An  affidavit  was  made  by  Cherry  for  the  purpose  of 
foreclosing  an  alleged  special  lien  in  his  favor,  as  a  laborer,  against 
Strong,  "  agent  for  Mrs.  A.  A.  Strong."  An  issue  was  formed,  and  at 
the  trial  the  defendant  moved  to  dismiss  the  plaintiff's  case  upon  the 
"■round  that  the  facts  set  forth  in  his  affidavit  showed  that  he  was  a 
partner  of  the  defendant,  and  not  a  mere  laborer.  This  motion  was 
sustained,  and  the  plaintiff  excepted. 

The  material  portions  of  the  affidavit  were,  in  substance,  as  follows  : 
On  the  28th  of  October,  1892,  Cherry,  the  deponent,  contracted  with 
Strong,  as  the  agent  of  Mrs.  Strong,  to  cultivate  her  lands  for  the 
year  1893.  The  same  were  to  be  planted  in  corn,  cotton,  etc.  Strong, 
as  agent,  was  to  furnish  140  acres  of  land,  4  head  of  horses  or  mules, 
a  wagon,  farming  utensils  sufficient  to  cultivate  the  land,  500  bushels 
of  Corn,  1200  bundles  of  fodder,  and  "  supplies  for  the  laborers  whom 
he  was  to  hire  for  three  of  the  ploughs  run  on  said  farm."  Cherry  "  was 
to  take  charge  of  the  four  ploughs,  and  run  them  together  ;  and  he  was 
to  manage  the  whole  farm,  and  keep  all  the  fences  in  repair,  .    .   .   and 

1  Only  that  part  of  the  opinion  which  deals  with  the  question  of  partnership  is 
reprinted. 


§  3.]  A   COMMON    BUSINESS    WITH    A   VIEW    OF    PROFIT.  29 

do  all  that  was  required  to  be  done  by  a  farm  manager,  —  for  which 
services  he  was  to  have  one- fourth  of  what  was  made  on  said  farm." 
The  affidavit  then  proceeded  to  state  that  Cherry  faithfully  performed 
and  completed  his  contract  of  labor ;  set  forth  the  amounts  of  the  crops 
made,  the  portion  and  value  thereof  to  which  Cherry  was  entitled,  the 
amount  he  had  received,  and  the  balance  still  due  him  "for  said  labor 
performed  by  affiant  as  aforesaid."  Demand  and  refusal  to  pay,  etc., 
were  also  alleged. 

The  only  question  made  before,  and  passed  upon  by,  the  trial  court, 
was  whether  or  not,  under  the  facts  alleged,  Cherry  was  a  partner  of 
Mrs.  Strong.  No  question  was  raised  as  to  the  insufficiency  or  defec- 
tiveness of  the  plaintiff's  affidavit  in  other  respects  ;  and  therefore,  in 
deciding  the  case,  we  have  confined  ourselves  strictly  to  the  issue  of 
partnership  or  no  partnership.  If  the  plaintiff's  affidavit  does  not, 
with  sufficient  clearness  and  distinctness,  allege  that  he  actually  per- 
formed manual  labor,  and  was  therefore  entitled,  as  a  laborer,  to  a  lieu 
upon  the  defendant's  property,  the  defect,  upon  being  pointed  out, 
would  have  been  curable  by  amendment.  "We  therefore  deem  it  fair  to 
decide  only  the  one  question  above  indicated,  and  leave  open  such  other 
questions  as  ma}'  hereafter  arise  in  the  further  progress  of  the  case. 
We  are  quite  clear  that  under  the  facts  presented  the  contract  alleged 
in  the  plaintiff's  affidavit  did  not  constitute  a  partnership  between  the 
parties.  There  are  numerous  decisions  of  this  court  in  support  of  this 
conclusion.  In  Holloway  v.  Brinkley,  42  Ga.  226,  this  court  held  that 
where  there  was  a  contract  between  a  freedman  and  a  landowner  to 
make  a  crop  for  one  year,  by  the  terms  of  which  the  latter  was  to  fur- 
nish the  land  and  stock,  and  the  freedman  to  work  the  same,  and  receive 
for  his  labor  one-half  of  the  crop,  no  partnership  between  the  parties 
resulted.  This  case  was  cited  approvingly  in  Smith  y.  Summerlin,  48 
Ga.  425,  where  a  very  similar  contract  was  under  consideration,  and 
the  same  doctrine  was  announced.  The  case  of  Gurr  v.  Martin,  73 
Ga.  528,  is  also  very  much  in  point.  By  the  terms  of  the  contract 
between  these  parties,  Martin  was  to  furnish  Gurr  a  farm,  stock  to 
cultivate  the  same,  implements,  cotton  seed,  and  guano,  and  also  to 
advance  certain  supplies  for  Gurr's  support.  Gurr  was  to  furnish  the 
necessary  labor  to  cultivate  the  farm,  "and  feed  for  said  labor;"  to 
make,  gather,  and  house  the  crops,  repair  fences,  'k  and  perform  such 
other  service  as  is  usually  done  on  a  farm,"  —  for  all  of  which  he  was 
to  receive  one-half  of  the  Crops  made,  gathered,  and  housed  by  him, 
and  also  one-half  of  certain  hogs.  Under  these  facts,  it  was  held  that 
the  contract  did  not  constitute  a  partnership  between  the  parties.  And 
see,  also,  Almand  v.  Scott,  80  Ga.  95.  In  view  of  the  cases  above 
cited,  and  others  which  might  be  cited  to  the  same  effect,  there  is  no 
difficulty  in  holding  that  in  the  present  case  no  partnership  existed. 
The  contract  simply  contemplated  that  Cherry  was  to  be  paid  for  his 
services  one-fourth  of  what  was  made  upon  the  farm.  The  facl  that 
his  compensation  would  vary  according  to  the  size  and  value  of  the 


30  THE    FORMATION    OF   A    PARTNERSHIP.  [CHAP.  J, 

crops  produced  would  make  no  difference,  for  it  might  well  be  stipulated 
that  the  measure  of  his  wages  should  depend  upon  the  diligence  and 
success  with  which  he  performed  his  work.  If  he  really  performed 
manual  labor  in  the  production  of  the  crops,  he  was  as  much  a  laborer 
as  though  his  wages  had  been  payable  in  money.  He  had  no  joint 
interest  in  the  property  used  in  the  business,  nor  a  joint  interest  in  its 
profits  and  losses,  but  the  price  of  his  services  was  simply  to  be  meas- 
ured by  the  results  of  his  labor.  The  court  erred  in  dismissing  the 
plaintiffs  case  on  the  ground  stated. 

Judgment  reversed? 


ASH   et  al.   v.   GUIE. 

97  Pa.  St.  493.     1881. 

Assumpsit  by  Guie  against  Ash  and  over  a  hundred  others  alleged  to 
have  been  "  lately  trading  as  Williamson  Lodge,  No.  309,  A.  Y.  M.," 
for  money  loaned  by  the  plaintiff  below  to  the  defendants,  as  evidenced 
by  a  certificate  in  writing,  which  acknowledged  that  Williamson  Lodge 
aforesaid  was  indebted  to  plaintiff  in  the  sum  of  $100,  pa3*able  in  two 
years  from  Nov.  11, 1870,  with  interest.  The  certificate  was  signed  by 
the  worshipful  master  and  wardens  of  the  lodge,  who  also  "  caused  the 
seal  of  the  said  lodge  to  be  affixed  ; "  and  the  signatures  and  seal 
were  attested  by  the  secretary  of  the  lodge.  The  mone}*  was  borrowed 
and  used  for  the  construction  of  a  temple  which  was  owned  by  the 
lodge.  Verdict  was  directed  for  the  plaintiff  against  the  defendants 
on  the  theoiy  that  the  members  of  the  lodge  were  partners. 

1In  Donnell  v.  Harshe,  69  Mo.  170,  172  (1877),  Napton,  J.,  said:  "It  is  essential  to 
a  partnership  that  there  be  a  community  of  interest  in  the  subject  of  it,  and  this  com- 
munity of  interest  must  not  be  that  of  mere  joint  tenants  or  tenants  in  common. 
When  the  effect  of  the  agreement  is,  as  propounded  in  the  instruction,  that  one  should 
occupy  and  cultivate  the  farm  of  another,  and  the  crops  should  be  divided  equally 
between  the  occupant  and  the  owner,  no  partnership  is  necessarily  intended  or 
created.  .  .  .  This  is  probably  a  very  common  mode  of  leasing  farms  in  this  State,  but 
the  proprietor  and  occupant  might  be  equally  surprised  to  be  informed  that  they  were 
partners." 

In  Reynolds  v.  Pool,  84  N.  C.  37  (1881),  it  was  held  that  the  following  agreement 
created  a  partnership  between  the  parties :  "  I  agreed  with  McPheeters "  (the  land- 
owner) "to  farm  for  the  year  1878  on  these  terms:  He  was  to  furnish  the  outfit 
and  the  land :  I  was  to  hire  the  hands  and  superintend  the  working  of  the  crop :  he 
was  to  provide  money  to  pay  the  hands  and  carry  on  the  business ;  for  one-half  of 
which,  as  well  as  for  the  like  proportion  of  the  hire  and  costs  of  feeding  the  mules  and 
horse,  he  was  to  be  repaid  by  having  the  amount  applied  in  reduction  of  his  indebted- 
ness to  me  previously  incurred  and  we  were  to  divide  the  profits."  The  court  declared 
it  to  be  a  partnership  "  between  the  parties  themselves,  because  the  one  of  them  does 
not  look  to  the  other  personally  for  restoring  to  him  his  capital,  or  remunerating  him 
for  his  labor,  but  each  looks  to  the  assets  or  joint  fund  for  these  purposes,  and  ascer- 
tains his  interest  by  taking  an  account  of  the  concern  ;  "  following  Holt  v.  Kernoldle. 
1  Ired.  L.  199  (1840),  which  was  based  upon  Waugh  v.  Carver,  2  H.  Bl.  235. 


§  3.]  A   COMMON   BUSINESS   WITH   A   VIEW   OF   PROFIT.  31 

H.  E.  JSfonaghan  (with  him  P.  F.  Smith),  for  plaintiff  in  error. 

i?.  J.  Monaghan,  for  defendants  in  error. 

Trcxkey,  J.  One  of  the  defendants,  called  by  plaintiff,  testified  : 
"The  full  title  of  our  lodge  is  Williamson  Lodge,  No.  309,  F.  and 
A.  M.  ;  F.  and  A.  M.  means  Free  and  Accepted  Masons  ;  the  pur- 
poses of  our  lodge  are  charitable,  benevolent,  and  social."  This  is  the 
evidence  as  to  the  objects  for  which  the  association  was  formed,  and 
without  proof  of  its  constitution  or  rules  respecting  admission  of  mem- 
bers and  the  management  of  its  affairs  it  was  held  to  be  a  common 
partnership.  A  pnrfrtArAliip  hnahppn  defined  to  be  a  "  col 
two  or  more  persons  of  capitaI7or*T!!fo(ji)  ua  uhijl  4Wfne  purpose  of 
business  for  their  common  benefit."  It  may  be  formed,  not  only  for 
ever}-  kind  of  commercial  business,  but  for  manufacturing,  hunting,  and 
the  like,  as  well  as  for  carrying  on  the  business  of  professional  men, 
mechanics,  laborers,  and  almost  all  other  employments.  It  would 
seem  that  there  must  be  a  community  of  interest  for  business  purposes. 
Hence,  voluntary  associations-  ot^-ciubs,  for  social  and  charitable  pur- 
poses, and  the  like,  are  not  proper  partnerships,  nor  have  their  members 
the  powers  and  responsibilities  of  partners.     Parson  on  Part.,  C,  3G,  12. 

A  benevolent  and  social  society  has  rarely,  if  ever,  been  considered 
a  partnership.  In  Lloyd  v.  Loaring,  6  Vesey,  773,  the  point  was  not 
made,  but  Lord  Eldon  thought  the  bill  would  lie  on  the  ground  of  joint 
ownership  of  the  personal  property  in  the  members  of  a  Masonic 
lodge  ;  there  was  no  intimation  that  they  were  partners.  Where  a 
society  of  Odd  Fellows,  an  association  of  persons  for  purposes  of 
mutual  benevolence,  erected  a  building  which  was  afterwards  sold  at 
sheriff's  sale  in  satisfaction  of  mechanics'  liens,  in  distribution  of  the 
proceeds,  it  was  said  that,  as  respects  third  persons,  the  members  were 
partners,  and  that  lien-creditors  who  were  not  members  were  entitled 
to  preference  as  against  the  liens  of  members.  P>abb  v.  Reed,  5 
Rawle,  151.  Had  the  members  been  called  joint  tenants  of  the  real 
estate,  the  same  principle  in  the  distribution  would  have  applied.  In 
Flemyng  v.  Hector,  2  M.  &  W.  172,  Lord  Abinger  stated  the  differ- 
ence between  a  bod}'  of  gentlemen  forming  a  club  and  meeting  together 
for  one  common  object,  and  a  partnership  where  persons  engage  in  a 
community  of  profit  and  loss,  and  each  partner  has  the  right  of  prop- 
erty for  the  whole,  and  in  any  ordinary  transaction  may  bind  the  part- 
nership by  credit.  He  held  that  a  club  and  its  committee  must  stand 
on  the  ground  of  principal  and  agent,  and  that  the  authority  of  the 
committee  depends  on  the  constitution  of  the  club,  which  is  to  be 
found  in  its  own  rules.  After  noting  the  rules  of  the  club,  in  the  ease 
before  him,  he  says  :  "  It  therefore  appears  that  tin:  members  in  gen- 
eral intended  to  provide  a  fund  for  the  committee  to  call  upon.  I  can- 
not infer  that  they  intended  the  committee  to  deal  upon  credit,  and 
unless  you  infer  that  that  was  the  intention,  how  arc  the  defendants 
bound?"  A  mutual  beneficial  society  partakes  more  of  the  character 
of  a  club  than  of  a  trading  association.     Every  partner  is  agent  for 


■\ 


32  THE   FORMATION   OF   A   PARTNERSHIP.  [CHAP.  I. 

the  partnership,  and  as  concerns  himself  he  is  a  principal,  and  he  may 
bind  the  others  by  contract,  though  it  be  against  an  agreement  between 
himself  and  his  partners.  A  joint  tenant  has  not  the  same  -power,  by 
virtue  of  the  relation,  to  bind  his  co-tenant.  Thus,  one  of  several  co- 
adventurers  in  a  mine  has  not,  as  such,  any  authority  to  pledge  the 
credit  of  the  general  body  for  money  borrowed  for  the  purposes  of 
the  concern.  And  the  fact  of  his  having  the  general  management  of 
the  mine  makes  no  difference,  in  the  absence  of  evidence  from  which 
an  implied  authority  for  that  purpose  can  be  inferred.  Ricketts  v. 
Bennett,  4  M.  G.  &  S.  686. 

Here  there  is  no  evidence  to  warrant  an  inference  that  when  a  per- 
son joined  the  lodge  he  bound  himself  as  a  partner  in  the  business  of 
purchasing  real  estate  and  erecting  buildings,  or  as  a  partner  so  that 
other  members  could  borrow  money  on  his  credit.  The  proof  fails  to 
show  that  the  officer  or  a  committee,  or  an}r  number  of  the  members, 
had  a  right  to  contract  debts  for  the  building  of  a  temple  which  would 
be  valid  against  every  member  from  the  mere  fact  that  he  was  a  mem- 
ber of  the  lodge.  But  those  who  engaged  in  the  enterprise  are  liable 
for  the  debts  they  contracted,  and  all  are  included  in  such  liability  who 
assented  to  the  undertaking,  or  subsequently  ratified  it.  Those  who 
participated  in  the  erection  of  the  building,  by  voting  for  and  advising 
it,  are  bound  the  same  as  the  committee  who  had  it  in  charge.  And  so 
with  reference  to  borrowed  mone}*.  A  member  who  subsequently  ap- 
proved the  erection  or  borrowing  could  be  held  on  the  ground  of  rati- 
fication of  the  agents'  acts.  We  are  of  opinion  that  it  was  error  to 
rule  that  all  the  members  were  liable  as  partners  in  their  relation  to 
third  persons  in  the  same  manner  as  individuals  associated  for  the 
purpose  of  earning  on  a  trade. 

This  unincorporated  association  had  a  seal  which  the  officers  were 
authorized  to  use  for  certain  purposes.  Some  of  those  who  engaged 
in  the  business  of  borrowing  money  directed  it  to  be  affixed  to  the 
certificate  of  indebtedness.  All  who  did,  adopted  it  as  their  seal  for 
the  specific  purpose.  It  was  not  the  seal  of  a  corporation,  nor  intended 
as  such.  The  parties  borrowed  the  money  in  the  name  of  the  lodge, 
and  gave  the  certificate  in  same  name,  and  adopted  a  common  seal. 
They  cannot  repudiate  it  in  good  faith  to  the  lender.  He  loaned  the 
money  on  a  sealed  instrument,  in  many  respects  better  than  a  simple 
contract.  Those  who  advised  affixing  the  seal  should  be  held  the  same 
as  their  officers  who  signed  the  certificate.  "Were  the  members  part- 
ners, without  evidence  of  agreement  between  them  that  the  seal 
should  be  affixed  to  contracts,  those  not  assenting  to  its  use  in  that 
way  would  not  be  bound  by  a  sealed  instrument,  though  given  for  a 
debt  for  which  all  were  liable.  Schmertz  v.  Shreeve,  12  P.  F.  Smith, 
457.  The  learned  judge  was  right  in  ruling  that  the  certificate  was  a 
sealed  instrument,  but  not,  under  the  evidence,  in  holding  that  it  was 
authorized  by  all  the  members.   .  .  . 

Without  noticing  seriatim  the  two  dozen  assignments  of  error,  we 


§  3.]  A    COMMON    BUSINESS    WITH    A   VIEW    OF    PROFIT.  33 

have  endeavored  to  express  our  opinion  on  every  material  point  raised 
by  them.  This  writ  is  by  all  the  defendants,  and  they  contend  that 
none  are  liable.  That  the  money  was  fairly  loaned  by  the  plaintiff  and 
used  by  the  borrowers,  is  not  disputed.  If  an)'  of  defendants  bad  no 
part  in  the  borrowing,  either  by  previous  assent  and  procurement,  or 
by  subsequent  ratification,  they  have  a  meritorious  defence,  and  the 
grounds  on  which  the  judgment  is  reversed  will  avail  them.  The  ques- 
tion is  one  of  fact,  and  must  be  determined  by  the  jury  from  the  evi- 
dence. It  is  difficult  to  conceive  of  a  meritorious  defence  in  those 
who  actually  got  the  money,  some  of  whom  signed  the  certificate,  and 
others  actively  participated  in  the  giving  of  it.  They  have  a  legal 
right  to  refuse  payment  until  judgment  be  recovered  according  to  law. 
But  they  cannot  complain  if  the  plaintiff  fails  to  include  every  one  in 
the  action  who  is  liable,  or  fails  to  discover  proof  against  every  one  in- 
cluded. In  the  nature  of  the  case,  it  is  difficult  for  the  plaintiff  to 
determine  in  advance  the  precise  individuals  who  are  liable,  though  he 
be  sure  of  some  of  them  ;  and  the  court  below  has  not  been,  and  will  not 
likely  be,  slow  to  allow  necessary  amendments,  authorized  by  the  statutes. 
Judgment  reversed,  and  venire  facias  de  novo  aicarded. 


BATARD  v.  HA  WES, 
2  Ellis  &  Blackburn,  287.     1852. 

Plaintiff,  defendant,  and  several  other  persons  were  a  provisional 
committee  working  together  to  form  a  railway  company.  In  this 
capacity  they  contracted  a  debt  in  respect  of  the  scheme  ;  the  creditor 
sued  plaintiff,  who  paid  the  entire  debt,  and  this  suit  was  brought  for 
contribution.     The  trial  judge  directed  a  verdict  for  the  plaintiff. 

Shee,  Serjt.,  moved  for  a  new  trial  on  the  ground  that  the  plaintiff 
and  defendant,  being  members  of  a  provisional  committee,  had  many 
cross  liabilities  in  respect  of  the  scheme,  and  that  it  was  a  misdirection 
to  direct  the  jury  to  find  a  verdict  for  contribution  in  respect  of  one  of 
them. 

Lord  Campbell,  C.  J.  The  objection  is  not  tenable.  If  provisional 
committee  men  were  partners,  the  action  would  not  lie  ;  but  it  has  been 
solemnly  decided  that  they  are  not,  as  partners,  liable  on  all  transactions 
entered  into  by  one  of  them,  but  that  the  liability  in  each  case  depends 
on  the  actual  contract  made,  taking  each  separately  as  an  isolated  trans- 
action, and  as  if  that  was  the  only  contract  made.  I  think  there  is 
no  third  class  known  to  the  law ;  either  they  are  partners  or  they  are 
not :  and  if  they  are  not,  the  rights  arising  on  one  contract  cannot  bo 
voided  because  there  are  others. 

Wigiitman,  ErtLE,  and  Ckompton,  JJ.,  concurred.1 

1  Iu  Holmes  v.  Higgins,  1  B.  &  C.  74  (1822),  Abbott,  C.  J.,  declared  that  the  mem- 
ber* of  such  a  committee  "were  partners;"  but  iu  Reyuell  V.  Lewis,  15  M.  &  W  517 

3 


34  THE   FORMATION   OF   A    PARTNERSHIP.  [CHAP.  L 

MARTIN  v.  BAIRD. 

175  Pa.  St.  540 :  34  At.  809.     1896. 

Plaintiff,1  being  the  owner  of  an  undivided  one-fourth  interest  in 
the  Riverside  Hotel  property,  at  Cambridgeboro,  Pa.,  united  with  his 
co-owners  in  a  sale  and  conveyance  thereof  to  defendant  for  the  sum 
of  $75,000.     At  the  same  time,  defendant  expressed  his  willingness  to 
form  a  partnership  with  plaintiff  for  the  purpose  of  carrying  on  the 
hotel  business  with  said  property,  and  agreed   to  convey  to  plaintiff 
a  one-fourth  interest  in  said  property  for  $18,750,  upon  the  formation 
of  a  partnership,  by  articles  of  agreement  in  writing,  signed  by  the 
parties.     After  the  sale  was  made,  but  before  the  deed  of  the  premises 
was  delivered,  the   plaintiff  and    defendant  went   to    Cleveland  with 
reference   to  the   interest   of   the  contemplated   partnership  and   the 
prosecution  of  the  business  thereunder,  and  there  arranged  to  have 
policies  of  insurance  to  a  large  amount,  then  on  the  property,  trans- 
ferred  in  consequence  of  the  sale.     A   statement  was  made  to  the 
insurance  agent  having  charge  of  the  business  that  a  partnership  was 
in  contemplation  between  plaintiff  and  defendant ;  and  it  was  decided 
by  the  insurance  agent  that  the  policies  ought  to  be  transferred  to 
William  Baird  and  J.  H.  Martin,  doing  business  as  William  Baird  & 
Co.,  as  their  interests  might  appear.      A  consultation  was  also  had 
with  different  persons  in  Cleveland,  with  reference  to  the  employment 
of  a  purveyor  for  the  hotel.     On  the  date  of  the  delivery  of  the  deeds 
to  the  defendant,  the  policies  of  insurance  were  transferred  as  arranged 
for  at  Cleveland.     On  the  day  of  the  delivery  of  the  deeds  of  the  prop- 
erty to  the  defendant,  and  after  their  delivery,  it  was  arranged  that  a 
deed  should  be  prepared  from  the  defendant  to  the  plaintiff  for  one 
undivided  fourth  of  the  property  that  day  conveyed  to  the  defendant. 
The  plaintiff's  interest  in  the  real  estate  conveyed  to  defendant  was 
covered  in  part  by  mortgages,  which  the  defendant  assumed  to  pay,  as 
will  appear  by  reference  to  the  articles  of  agreement.     After  the  delivery 
of  the  deed  by  the  plaintiff  to  the  defendant,  the  plaintiff  made  a  pay- 
ment on  one  of  the  mortgages  against  the  interest  in  the  property  which 
he  had  conveyed  to  the  defendant,  with  the  knowledge  of  defendant,  in 
anticipation  that  a  "conveyance  would  be  made  by  the  defendant,  and 
the   partnership   formed    in    accordance  with   the   negotiation    of  the 
parties.     From  the  5th  of  February  the  business  was  conducted  under 
the  partnership  name  of  William  Baird  &  Co.     Books  were  opened  in 
that  name;   the  letter  heads  and  envelopes  were  stamped  with  that 
name  ;  and  an  entry  was  made  in  the  journal  of  William  Baird  &  Co.  : 

(1846),  this  view  was  rejected.     Said  Pollock,  C.  B.,  "Such  an  intended  association 
constitutes  no  agreement  to  share  in  profit  or  loss,  which  is  the  characteristic  of  a 
partnership.     It  would  be  absurd  to  suppose  that  such  a  relation  could  be  meant  to  be 
created  by  auy  of  those  who  consented  to  act "  as  provisional  committee  men. 
1  The  statement  of  facts  has  been  abridged. 


§  3.]  A   COMMON    BUSINESS    WITH    A    VIEW    OF    PROFIT.  35 

Real  estate $33,000 

Furniture  and  fixtures 12,000 

Bottles i'500 

Carriage  and  road  stock 3,000 

Provisions 1,000 

Bedding  and  linen 2,900 

Drying  room  and  machinery 464: 

Tools  and  chattels 100 

Fuel 136 

$75,000 

To  Wiliam  Baird,  three-fourths §56,250 

To  J.  H.  Martin,  one-fourth 18,750 

Total 875,000 

Investment  of  William   Baird   &   Co.  on  commencing  hotel  business  in 
Hotel  Riverside,  Cambridgeboro,  February  5,  1895. 
Interest  in  partnership  and  profits  to  be  had  as  follows: 

William  Baird,  three-fourths §56,250 

J.  H.  Martin,  one-fourth 18,750 

The  entries  were  so  made  and  the  business  so  conducted  in  antici- 
pation of  the  formation  of  the  partnership  herein  above  referred  to, 
and  the  conveyance  to  plaintiff  of  the  undivided  one-fourth  of  the 
property. 

At  different  times  after  February  5,  1895,  plaintiff  and  defendant 
endeavored  to  agree  upon  and  reduce  to  writing  the  terms  of  the 
partnership,  and  a  memorandum  was  prepared  by  the  parties,  and  sent 
to  an  attorney  in  Pittsburg,  to  be  reduced  to  proper  legal  form. 

The  plaintiff  was  not  satisfied  with  one  or  two  provisions  of  the 
contract,  and  the  paper  was  not  therefore  signed.  The  plaintiff  was 
at  this  time,  and  had  been  since  the  5th  of  February,  1895,  in  charge 
of  the  baths  and  medical  business  of  the  establishment.  On  February 
8th  a  power  of  attorney  was  executed  by  the  plaintiff,  with  the  knowl- 
edge of  the  defendant,  authorizing  W.  E.  Kimberling  to  sign  checks 
and  transact  other  business  for  William  Baird  &  Co. 

March  21,  1895,  the  parties  having  failed  to  agree  upon  the  terms  of 
partnership,  the  defendant  ejected  the  plaintiff  from  the  property,  and 
has  since  prevented  him  from  having  access  thereto. 

(The  plaintiff  having  brought  a  bill  in  equity  to  enforce  a  trust  as  to 
the  undivided  one-fourth  of  said  property  and  to  secure  an  account  of 
the  partnership  alleged  to  have  existed  in  the  said  hotel  business,  the 
trial  court  decided  that  no  trust  existed  in  plaintiff's  favor,  and  con- 
tinued.) The  plaintiff's  demand  for  an  account  is  based  upon  the 
allegation  of  an  existing  partnership.  The  allegation  of  partnership, 
however,  is  based  upon  the  assumption  of  a  title  in  trust  by  the  de- 
fendant for  the  plaintiff.  The  evidence  not  being  sufficient  to  support 
a  decree  of  trust,  the  allegation  of  partnership  necessarily  fails.  The 
bill  charges  that  an  agreement  of  partnership  was  formed  at  the  time 
when   the  memorandum  of  January   28,   1895,   was  executed   by  tho 


36  THE   FORMATION    OF   A   PARTNERSHIP.  [CHAP.  L 

defendant,  and  that  it  was  a  part  of  the  agreement  under  which  the 
resulting  trust  is  alleged.  It  seems  clear,  however,  from  all  of  the 
evidence,  that  the  agreement  between  the  plaintiff  and  the  defendant 
with  reference  to  the  partnership  was  that  a  partnership  should  be 
formed  in  the  future.  That  it  was  not  so  formed  at  the  time  when  the 
plaintiff  and  defendant  went  to  Cleveland,  after  the  28th  of  January,  is 
evident  from  the  plaintiff's  testimony.  In  the  negotiation  in  reference 
to  the  transfer  of  the  policies  of  insurance,  it  clearly  appears  that  the 
parties  had  in  mind,  not  an  existing  partnershjjx^bjiLa.  1 1 Jjioposed." 
partnership,  and  this  tentative  coiKiitionJofthingj,  existed  up  to  4,hft^ 
period  when  the  parties  finally  ^disagreed  with  reference  to  jthe-ayticles 
of  partnership,.  The  entries  of  the  bookkeeper  in  the  books  of  the 
hotel,  the  dating  of  the  letter  heads,  the  transfer  of  the  policies  of 
insurance,  and  the  other  acts  referred  to  in  the  evidence,  indicating  a 
recognition  of  the  partnership,  are  not  inconsistent  with  this  view  of 
the  case.  The  parties  intended  to  form  a  partnership,  and  these  acts 
were  performed  in  view  of  an  apparently  confident  expectation  of  each 
of  the  parties  that  there  would  be  no  difficulty  in  arranging  thejietails 
of  a  contract  of  partnership.  Having__failed_  so  to  do^Jioweyprrno 
partnership  existed,  aucTtEe  plaintiffjsjoLJ^ere^£^a£ilJed--te--aa 

agcoittrt: 

The  defendant  tendered  to  the  plaintiff  the  amount  due  under  the 
terms  of  the  articles  of  agreement,  including  the  amount  which  the 
plaintiff  had  paid  to  apply  on  one  of  the  mortgages  which  was  an 
incumbrance  upon  the  property  at  the  time  defendant  purchased  it. 
The  balance  of  the  purchase  money  is  applicable  upon  these  mortgages 
in  accordance  with  the  provisions  of  the  articles  of  agreement.  The 
plaintiff  has  therefore  suffered  no  prejudice,  and  is  entitled  to  and  can 
at  any  time  receive  the  amount  due  him  from  the  property.  There 
does  not  therefore  appear  to  be  any  such  equity  in  the  case  presented 
by  the  plaintiff  as  warrants  the  relief  sought  in  the  prayer  of  the  plain- 
tiff's bill.     It  is  therefore  dismissed,  at  the  cost  of  the  plaintiff. 

Samuel  S.  Mehard  and  Pearson  Church,  for  appellant. 

George  F.  Davenport,  P.  C.  Knox,  and  Shiras  &  Dickey,  for 
appellee. 

Per  Curiam.  After  a  careful  examination  and  study  of  the  record 
in  this  case,  we  are  convinced  that  the  findings  of  fact  and  conclusions 
of  law  contained  in  the  opinion  of  the  learned  court  below  are  correct, 
and  should  be  sustained.  While  it  is  apparent  that  the  parties  intended 
to  form  a  partnership,  it  is  manifest  that  it  was  a  partnership  to  be 
formed  in  the  future.  It  is  equally  clear  that,  in  point  of  fact,  the 
partnership  never  was  formed.  The  negotiations  to  that  end  were 
never  completed,  and  did  not  reach  to  an  actual  agreement.  Without 
going  into  details,  it  is  sufficient  to  say  that  we  approve  of  the  findings 
of  fact  and  law  as  expressed  in  the  opinion  ;  and,  upon  those  findings, 
we  affirm  the  decree. 

Decree  affirmed,  and  appeal  dismissed,  at  the  cost  of  the  appellant. 


SA] 


JOINT-STOCK   COMPANIES. 


37 


§  4.    Joint-Stock  Companies. 

CARTER  et  al.  v.  McCLURE  et  al. 
38  S.W.  585:  9S  Tenn.  — .     1897. 

Beard,  J.  The  bill  in  this  cause  was  filed  by  complainants,  as  credi- 
tors of  McClure,  Lucas,  &  Co.,  seeking  to  hold  the  defendants  liable 
for  the  debts  of  that  concern,  upon  the  theory  that  it  was  a  commercial 
firm,  of  which  defendants  were  members,  at  the  time  of  the  creation  of 
these  debts.  The  facts,  so  far  as  they  are  important  in  the  decision 
of  this  case,  and  as  they  have  been  found  by  the  Court  of  Chancery 
Appeals,  are  :  That  these  defendants,  with  others  who  are  not  sued,  all 
members  of  an  alliance  lodge  in  the  town  of  lluntland,  in  this  State, 
entered  into  an  agreement  among  themselves  to  raise  a  sum  of  money 
which,  it  was  assumed,  would  be  sufficient.  to_gstahlish  .i  co-operative 
store  in  that  jalace.  Thig  ngrppmf*TTtr^sTcduce^  to  wHtimr,  nn/l  th* 
names  of  the  parties  in  interest  were_by^them  Afijxjjd  to  it,  and_ov£r_ 
against  his  signature  was. 


amount   which  each  subscriber 


obligated  himself  to  contribute  to  this  joint  enterprise.  This  agreement 
is  in  words  and  figures  following,  to  wit:  ''HuntlanB,  Tenn.,  Dec.  21, 
1888.  AYe,  the  undersigned,  agree  to  pay  to  the  directors,  to  be 
elected,  the  sum  annexed  to  our  respective  names,  by  the  first  of 
Januaiy,  1^89,  fo''  tV<p-  purpose  of  establishing  a  co-operative  store 
at   Huntland,    Tennessee.     AVe    further   agree    that    the   said    money 


remain  in  the  business  for  at  least  fivg^.y.ears_  from  beginning,  unless" 
two-thirds  of  the  stockholders  agree  to  discontinue  the  business  in  a 
shorter  time!  "We  further  agree  that  three  of  the  stockholders  be 
elected  annuall}'  as  directors,  to  have  full  control  of  the  stock  hereunto 
subscribed.  It  is  further  agreed  that  the  directors  act  in  conjunction 
with  R.  AY.  McClure,  who  is  a  stockholder  to  the  amount  of  82,050, 
and  who  is  to  be  the  principal  salesman,  and  in  the  transaction  of  all 
business  between  the  said  McClure  and  directors,  the  directors  are  to 
be  ^rco-.nrrlcd  collectively  nr  n,s  p,  unit,  nnd  t.l^o.  s.iid  McClure  as 
unit  ". 

After  the  execution  of  this  paper,  the  three  directors  provided  for 
in  it  were  duly  chosen,  and  into  their  hands  the  subscribers  paid 
the  several  sums  they  had  agreed  to  contribute.  These  sums,  aggregat- 
ing $590,  were  turned  over  by  the  directors  to  Mr.  McClure,  who, 
adding  the  amount  of  $2,050,  which  he  had  agreed  to  place  in  the 
venture,  purchased  a  stock  of  goods,  and  opened  up  a  co-operative 
store  in  the  name  of  R.  AY.  McClure  &  Co.,  this  being  the  business 
name  agreed  upon  by  McClure  and  the  three  directors.  No  incorpora- 
tion ever  took  place,  nor  was  such  ever  intended  by  these  parties. 

The  main  purpose  of  the  defendants,  in  entering  into  this  business, 
was  to  avoid  what  they  deemed  to  be  the  extortion  theretofore 
practised   upon  them  in  the  sale  of  goods  by  the  merchants   of  tho 


38  THE   FORMATION    OF   A   PARTNERSHIP.  [CHAP.  I. 

country.  While  not  embodied  in  their  writing,  yet  one  of  the  terms 
of  the  contract,  and  the  one  which  chief!}',  if  not  altogether,  induced 
all  the  subscribers  (save,  no  doubt,  McClure)  to  become  interested 
in  this  enterprise,  was  that  the}r  were  to  purchase  such  goods  as  they 
mio"ht  require  from  the  stock  in  this  store  at  a  profit  not  exceeding 
ten  per  cent  above  cost ;  and  these  directors  were  chosen  as  their 
representatives,  especially  to  look  after  McClure,  who  was  the  largest 
shareholder,  as  well  as  manager,  and  see  that  he  kept  faith  with  the 
subscribers  in  this  matter.  While  the  defendants,  styling  themselves 
in  their  written  agreement  as  "  stockholders,"  took  no  active  personal 
control  of  the  concern,  yet  they  manifested  a  lively  interest  in  its 
success..  In  addition  to  giving  it  the  benefit  of  their  ^wn_jDatronage, 
they  were  zealous  in  commending  it  to  their  neighbors. 

At  the  end  of  the  first  year  one  Mosely  desired  to  purchase  an 
interest  in  the  business.  He,  however,  was  not  a  member  of  the 
"  alliance,"  and,  organized  as  this  enterprise  was,  in  line  with  or  under 
the  inspiration  of  that  movement,  it  was  necessary  that  he  become  such 
before  he  could  be  allowed  to  make  such  purchase.  In  order  to  qualify 
him  to  this  end,  the  rules  of  the  "lodge"  to  which  these  defendants 
belonged  were  suspended,  and  at  one  meeting  he  was  admitted  to  the 
privilege  of  full  fellowship  with  them.  He  contributed  $2,000  to  the 
capital  of  the  concern,  and  its  name  was  changed  to  McClure,  Mosely, 
&  Co.  At  the  end  of  another  term  of  twelve  months  Mosely  sold  out 
his  interest  to  one  Lucas,  and  thereafter  the  enterprise  was  conducted 
in  the  name  of  McClure,  Lucas,  &  Co.,  until  insolvency  overwhelmed 
it  with  disaster.  The  claims  of  complainants  accrued  during  the 
existence  of  and  against  this  latter  concern.  In  addition  to  these 
changes  in  the  organization  of  and  style  of  the  business,  two  deaths 
occurred  among  the  original  subscribers, — one  of  them  before,  and 
the  other  after,  the  creation  of  these  debts.  This  latter  death,  how- 
ever, can  in  no  way  affect  this  controversy,  and  will,  therefore,  not 
be  further  noticed. 

Upon  this  state  of  facts  it  is  insisted  for  the  defendants  —  First,  that 
this  undertaking  was  in  no  sense  a  partnership,  and  that  they  did  not 
sustain  the  relation  of  partners  to  either  R.  W.  McClure  &  Co., 
Mosely,  McClure,  &  Co.,  or  McClure,  Lucas,  &  Co. ;  secondly,  if, 
however,  they  are  mistaken  in  this  broad  proposition,  then  that  they 
were  only  partners  in  the  firm  of  R.  W.  McClure  &  Co.,  and  that  all 
partnership  relation  and  liability,  on  their  part,  were  terminated  or 
.  dissolved  by  the  various  changes  already  adverted  to,  and  long  prior 
to  the  creation  of  complainants'  debts.  The  chancellor  and  the  Court 
of  Chancery  Appeals  held  both  these  contentions  against  the  defendants, 
and  the  case  is  now  before  us  on  an  appeal  from  the  decree  of  this  last- 
named  court 

1.  Were  those  parties  engaged  in  a  partnership  enterprise?  All 
of  the  defendants  earnestly  disclaim  any  purpose  of  entering  upon 
such  an  undertaking.     While,  as  has  been  stated,  the  prime  motive 


5M 


JOINT-STOCK    COMPANIES. 


39 


of  these  parties  was  to  organize  a  mercantile  establishment  where  there 
various  needs  would  be  supplied  at  reasonable  figures,  yet  they  con- 
fess that,  outside  of  this,  they  expected  to  share  in  any  profits  earned 
by  it  in  proportion  to  the  respective  amounts  contributed  by  them. 
These  amounts  were  small,  yet  they  were  to  serve  as  a  basis  for  such 
distribution  of  profits.      It  is  no  doubt  true  that  the  defendants  did  not 
contemplate  a   partnership,   and  each  supposed    that  he   was  simply 
takino-  a  share  in  a  joint-stock  enterprise,  in  which  all  he  risked  was 
the  small   sum   paid    for   such  share  ;    yet  it  is  for  the  law  to  deter- 
mine   on  the  facts  already  given,  whether   a   partnership  was  created, 
with  all  its  attendingliabilitigs.     In  Mallory  v.  Oil  Works,  86  Tenn. 
598    is  quoted   approvingly   the  definition  of  a  partnership  as  given 
by   Jud^e   Story.     "  A^partnersMj^^av^Jhe^Jorj^^ 


usually  defined  "to   be^ToTu^ryw^ 

^SeteXp^ 
•^^-^jTToTi^^ 
s^uTdlnTtblinh^rVs^^ 
a"rtn.  §2 


,."-STon    i-artn.  §2.     i^f£^^^r5f^<5omtW^^^y 

jvnpiaTs,   a  general   outline   of  which    is    given    above,    disclose   the 
constituent  elements  of  a  partnership  as  required  by   this  definition. 
It  is  a  case  where  these  parties  have  embarked  their  money  »  in  lawful 
commerce,  .   .   .  with   the    understanding    that   there"    should   be   a 
division  of  profits  earned.     In  addition  to  this,    they  have   taken   a 
firm    name,  and   thus   have    advertised   themselves    to   the   world   as 
a  commercial  partnership.     Calling  their  contributions  to  the  capital 
of  this  business  a  "  subscription  for  stock,"   and  taking  certificates 
for  their  payments  from  the  company  as  a  joint-stock  company,  it  not 
being  incorporated,  cannot  alter  their  liability.     «  There  is  no  interme- 
diate association,  or  form  of  organization,  between  a  corporation  and 
a   partnership,   known   to   the   common    law,   and,   unless   otherwise 
provided  by  statute,  as  is  the  case  in  England  and  New  York,  a  joint- 
stock  companv  is  treated  and  has  the  attributes  of  a  common  partner- 
ship."     1    Bates,  Partn.   §    72.     And    Judge    Story  says   that,    "  In 
joint-stock   and  other  large  companies    which   are   not   incorporated, 
but  are  a  simple,  although  an  extensive,  partnership,  their  liabilities 
to  third  persons  are  generally  governed  by  the  same  rules  and  princi- 
ples which  regulate  commercial    partnerships."     And  such  has  been 
the   conclusion   of  the   courts  wherever  the  character   of  joint-stock 
companies  similar  to  the  one  in  question  has    been  passed  upon,  so 
far  as  our  examination  has  disclosed.      At  least  such  was  the  holding 
in  Hodgson  v.  Baldwin,  65  111.  532;  Kenyon  v.  Williams,  19  Ind.  44  ; 
Manning  v.  Gasharie,  27  Ind.  390  ;  Beaman  v.  Whitney,  20  Me.  413; 
Farnum  v.  Patch,  00  N.  II.  294.     The  Supreme  Court  of  New  Hamp- 
shire, in   this   last   cited   case,   have    delivered   an    able,    exhaustive 
opinion  upon  the  law  of  partnership  as  it  applies  to  an  association 
like  the  one  in  question,  and  we  content  ourselves  with   what  we   have 
already  said,  and  by  making  special  reference  to  that  opinion.     In  the 


40  THE   FORMATION   OF   A   PARTNERSHIP.  [CHAP.  L 

light  of  these  authorities,  w^Jthink—there  ean  be  no-4ojjbjLthjit_l]i£se 
pa,yt.ip,b  ^r°  pnrtp^ra  in  tha  fi,,m  of  ^    W  M^CJI1!^  &  Co. 

2.  We  think  it  equally  clear,  on  the  facts  of  this  case,  and  in  view 
of  the  legal  principles  applicable  to  them,  that  there  was  no  termina- 
tion of  the  partnership  enterprise  resulting  from  the  changes  occurring 
during  its  progress,  by  the  introduction  and  subsequent  withdrawal 
of  Mosely,  and  the  accession  of  Lucas  or  his  capital  to  it,  or  the  death 
of  one  of  the  original  subscribers  intermediate  between  the  start 
of  this  business  and  the  final  insolvency  of  McClure,  Lucas,  &  Co. ; 
that,  through  all  these  changes,  the  defendants'  relations  remained 
as  fixed   hy  themselves    in^he^egmmngj_jinii_^^  linhlp_ 

asj^ajlnjjrjJbAthjM^ 

This  conclusion  we  rest  on  two  grounds :  First.  It  is  found  by 
the  Court  of  Chancery  Appeals  to  be  a  fact  that  these  defendants 
were  members  of  the  alliance  lodge  that,  by  a  suspension  of  its  rules, 
hnrriprily  qn*d.jflf»fl  Mnaplv  so  that  he  might  bring  his  napit.il,  and 
his  name  to  the  aid  of  this  joint  undertaking.  They  do_jiot  claim ^ 
to  have  been  ignorant  of  this  proceeding,  or  to  have  off  prod  nny 
opp_osition  to  it,  either  in_o_r  out  of  their— lodgf^jor.  that  i-.lmy- *nn*fo 
inVi 


anv  protest  against  his  accession  to  the  business.  On  the  contrary, 
their ^eal_far^the-succe£S,jifJih£~ji^ 

Af^s^j^lJi-r^gaj^to^hejsrithili'nwal  of  JMosejy  and  the  introducjio n 
oXXdlcasjn  his  room__ajid  stead-  The  record  shows  consultatioB-with 
quite  a^njimber  of  these  defendants~as~to  "  the_ advisability  of  -this 
Qha-flge,  and  an  agreement  with  them  in  regard  theretcs^and  acquies- 
pp.neR^itTpast  byjsdgnne,  on  t.hp.  part  of  tht±xmnai.ndc>v.  All  these  parties 
through  the  various  changes  in  the  personnel  of  the  organization, 
by  death  and  purchase,  and  in  the  firm  name  under  which  the  business 
was  carried  on,  not  onby  stood  by  and  watched  the  movements  of 
the  concern,  as  one  in  which  they  had  a  part,  but  they  made  no 
claim  of  dissolution  by  reason  thereof  until  confronted  by  the  claims 
of  these  complainants.  It  was  then  too  late.  For,  conceding  that 
either  one  of  these  acts  might  have  been  availed  of  b}'  the  defendants 
as  working  a  dissolution  of  their  partnership,  }'et,  at  their  election, 
they  might  waive  this  effect. 

Second.  The  nature  of  this  enterprise  repels  the  idea  that  it 
was  in  the  contemplation  of  the  parties  that  either  death  or  any 
transfer  of  shares  should  work  a  dissolution  of  the  business.  Not 
only  was  it  to  continue  for  five  j'ears,  "  unless  two-thirds  of  the 
stock-holders  '  agreed'  to  discontinue  the  business  in  a  shorter  time," 
but  the  shares  of  the  stockholders  were  transferable.  Says  Mr.  Bates 
in  his  work  on  Partnership  (volume  1,  §  72) :  "  The  fact  of  transfer- 
able shares  makes  such  an  association  different,  not  merely  in  magni- 
tude, but  in  kind,  from  ordinary  partnerships,  because  not  based  upon 
mutual  trust  and  confidence  in  the  skill,  knowledge,  and  integrity  of 
every  other  partner.  Hence  a  sale  of  his  shares  by  a  member,  the 
shares  being  transferable,  is  not  a  dissolution.     Death  of  a  member 


»*■] 


DEFECTIVELY    INCORPORATED    ASSOCIATIONS. 


41 


is  not  a  dissolutionjifsuch  was  the  intent  and_thc^cliajantf.n-o£-the 
association,  in  that  theshares  are  transferable,  and  Jt  is  governed  by_ 
oTn^e^^andis^in^llIenolrmoTa  corporation,  is  evidence  of  such  intent." 

opinions   oi    many__conr!s 


text  writers    and 


delectus  personarum  an  element  in  an  ordinary  commercial  partner- 
ship, is  lacking _when^^J5Tt!K:rniLULa"ssun]es  the  character" of  a  jouv£ 
stockcoiupanv  with^transierabje  shares.  2  Bates,  Partn.  §  581  ;  Bank 
^fen7T2rMass.  81  ;  Walker' t\  Wait,  50  Vt.  6G8 ;  McNeish  v.  Oat 
Co.,  57  Vt.  316. 

It  follows  that  the  assignments  of  error  upon  the  decree  of  the  Court 
of  Chancer}'  Appeals,  in  the  particulars  above  indicated,  must  be  over- 
ruled. The  assignments  of  error  upon  the  court's  decree  as  to  the 
Lipscomb  claim  are  disposed  of  only. 


The  decree  of  that  court  is  in  all  things  affirmed. 


&/C 


p6<«i" 


§  4.    Defectively  Incorporated  Associations. 

McLENNAN   et   al.    v.   HOPKINS. 
2  Kansas  Court  of  App.  260  :  41  Pac.  1061.     1895. 

Garver,  J.  Minnie  Hopkins,  as  assignee  of  Smith  &  Hopkins, 
brought  this  action  against  the  plaintiffs  in  error  to  recover  the  sum  of 
$761.54,  alleged  to  be  due  on  account  of  a  deposit  of  money  made  by 
Smith  &  Hopkins  in  the  Bank  of  Dorrance,  which  was  owned  and 
controlled  by  plaintiffs  in  error,  and  for  which  deposit  it  is  claimed  they 
were  liable  as  partners.  .  The  defendants  answered  the  petition  by  a 
verified  answer,  consisting  of  a  general  denial,  and  the  further  allega- 
tion that  "  all  of  the  dealings  and  transactions  stated  in  said  plaintiff's 
petition  were  had,  if  at  all,  with  the  Bank  of  Dorrance,  the  same  being 
a  duly  organized  and  existing  corporation  under  the  laws  of  Kansas." 
No  reply  was  filed  to  this  answer,  but  a  trial  was  had  the  same  as  if 
issue  had  been  formally  joined  upon  all  material  facts  in  dispute,  and  judg- 
ment was  rendered  against  the  defendants  (now  plaintiffs  in  error),  hold- 
ing them  individually  liable  as  partners  for  the  full  amount  of  the  claim. 

The  record  shows  that  about  April,  1886,  A.  N.  McLennan  and  his 
co-defendants,  with  others,  agreed  to  establish  a  bank  for  the  trans- 
action of  a  banking  business  at  Dorrance,  Kan.,  with  a  capital  of 
§50,000,  divided  into  shares  of  $100  each.  Pursuant  to  such  agree- 
ment, the  several  parties  interested  signed  a  paper,  each  agreeing  to 
take  certain  shares  of  stock.  Certain  ones  of  their  number  were  chosen 
to  act  a3  directors,  and  W.  Z.  Smith  was  elected  president,  and  L.  B. 
Hail,  cashier.  The  full  amount  of  the  capital  stock  was  subscribed, 
and  two  assessments,  of  10  per  cent  each,  paid  in  by  the  subscribers 
shortly  after  the  subscriptions  were  made,  and  thereafter  a  dividend  of 
the  profits  of  the  business  was  made  from  2  to  5  per  cent,  which  was 


42  THE   FORMATION    OF   A    PARTNERSHIP.  [CHAP.  I. 

applied  by  the  bank  as  a  farther  payment  on  the  stock.     A  seal  was 
provided  and  used,  and  a  regular  banking  business  of  discount    and 
deposit  was  carried  on  under  the  name  of  the  Bank  of  Dorrance  until 
December,  1889.     About    the  time  of  the  organization  of  the  bank, 
under  the  direction  of  the  president,  articles  of  incorporation  of  some 
kind  were  drawn  up,  the  record  not  disclosing  what  such  articles  con- 
tained ;  neither  does  it  show  by  whom  they  were  signed,  though  the, 
CYJdcnc£j-°n'1g  to  .^howjhat  thev  were  signed  bv  some  of  the  directors^ 
and  thereafter  delivered  by  the  president  of  the  hank  to  the  _  cashier^ 
yVinrtiflpfL of  incorporation  or  statement  of  any  kind  concerning  Thp — 
nrcT.nni7n.tion  of  si  id  bank  were   filetTor^recorded  in  the  office  of  the 
register  oTdeeds  of  Eussell  County,  wheresaid  barn^ga^ocatedj-aex. 
"any  copy""or  other  instrument  filedjnJlh^omrcFoTthe_.SPcrptary  of  state. 
~  VTjthJlie  exceptinn-of  the  preeywk  none  of  the  stockholders  seem  to 
have  given  any  attention  to  the  incorporation  of  the  bank,_and  allowed 
^jpl^nnnrss  to  h?  p^vrirxl  nn,  beUeving-lhat  it  was~duly  incorporated, 
and  not  intending  at  any  time  to  assume  any  liabilities  other  than  such 
as  might  attach  to  them  as  stockholders  in  a  corporation    organized^ 
"umTer^the  laws  of  Kansas.     Smith  &  Hopkins',  in Jheir~dealingsjatir 
the  ban^regarded  it  as  a"- corporation,  and  knew  nothing  to  the  con- 
trarvTuntil  about  the  time  of  the~failure~of  the  bank  in  1889,jmd_after_ 
the  deposits  sought  to  bergcovered  were  _madej_ 

*  The  maTiTquestion  toTe~^U3cTde7TThTlnTcase  is  whether  one  having 
a  claim  as  depositor  in  this  bank  for  the  recovery  of  an  unpaid  deposit 
can  hold  the  several  persons  who  own  the  bank  individually  liable  as 
partners,  or  whether,  having  dealt  with  the  bank  as  a  corporation,  he 
is  estopped  from  claiming  any  other  than  a  corporate  liability.  It  is 
contended  for  plaintiffs  in  error  that  the  bank  was  at  least  a  de  facto 
corporation,  and  that  one  dealing  with  it  as  such  cannot,  in  this  colla- 
teral way,  attack  the  validity  or  regularity  of  its  incorporation. 

Were  the  defendants  liable  as  partners?     It  must  be  conceded  that 
they  were  jointly  interested  in  the  business  carried  on  in  the  name  of 
theBank  of  Dorrance,  and  jointly  concerned,  though  perhaps  in  differ- 
ent degrees,  in  the  profits  and  losses  of  that  institution.     The  business 
for  the  conduct  of  which  the  bank  was  organized  was  such  as  could 
very  properly  and  legally  be  carried  on  by  one  or  more  persons,  with- 
out regard  to  laws  for  the.  incorporation  of  such  enterprises.     Incorpo- 
rated banks  do  not  have,  either  in  law  or  in  fact,  an  exclusive  right  to 
engage  in  the  business  of  receiving   deposits,  loaning  funds,   selling 
exchange,  and  the  like,  such  as  was  conducted  by  the  Bank  of  Dor- 
rance.    Being  thus  jointly  engaged  in  such  business,  there  is  no  pre- 
sumption of  individual  non-liability.     Persons  engaged  in  business  as  a 
corporation,  whether  their  charter  rights  and  privileges  are  conferred 
by  a  special  or  general  law,  are  relieved  from  individual  liability  for 
the  acts  of  the  association  with  which  they  are  connected.     The  law 
pertaining  to  incorporated  bodies  clothes  the  individual  with  an  immu- 
nity from  liabilities   which  otherwise  would  fall  upon    him.     Hence  it 


§4.] 


DEFECTIVELY    INCORPORATED    ASSOCIATIONS. 


43 


.a^trans- 

it  wv  th"  v* 


follows  "hat  to  enable  one  to  avoid  such  individual- 
action  with-** hiuh  he  iu  connootodi  ou  the  gmnnd  tint 
a_-<r6Tporajjnnin-3-lli',h  he  was  only  a  stockholder,  it  must  appear— thftt-- 
^nrhjJ-£T2lh^V'lJ2^I'  toW"  tr>  "ieorpo',!^  ^  wilLutii-p  tli^st^-mtt^erned 
in  itj_jvt  least,  a  jegal  semblance  of  corporate  existence.  When  the 
question  arises  collaterally,  as  it  does  in  this  case,  it  is  not  necessary 
that  the  various  steps  prescribed  by  law  should  have  been  fully  and 
regularly  taken,  or  that  the  corporation  should  exist  <!>  jure;  it  is  suffi- 
cient that  enough  has  been  clone  to  make  it  a  corporation  de  facto.  To 
this  extent,  we  agree  with  counsel  for  plaintiffs  in  error. 

The  question  still  remains,  was  the  Bank  of  Dorrance  a  corporation 
de  facto/  We  think  not.  It  is  difficult,  and  perhaps  unnecessary,  to 
attempt  to  reconcile  the  many  decisions  bearing  on  this  question.  Be- 
tween some  of  them  there  is  an  irreconcilable  conflict,  so  that,  when  we 
come  to  determine  what  is  a  de  facto  corporation,  we  are  met  by  a 
diversity  of  authority.  The  rule  recognized  by  the  Supreme  Court  of 
this  State  is  thus  stated  by  Mr.  Justice  Brewer  in  Pape  v.  Capital  Bank, 
20  Kan.  440  :  "  When  parties  have  associated  themselves  together  for 
the  purpose  of  organizing  a  corporation  under  a  general  law,  and  have 
proceeded  in  good  faith  to  take  all  the  steps  supposed  necessary  to  com- 
plete such  incorporation,  and  on  the  faith  thereof  engage  in  business  as 
a  corporation  for  a  series  of  years,  a  party  who  has  repeatedly  dealt 
with  them  as  such  corporation  will  not,  when  sued  on  a  note  and  mort- 
gage held  by  it,  be  permitted  to  show,  as  a  defence  to  the  action,  that 
there  was  some  mere  technical  omission  in  the  steps  prescribed  for 
incorporation.  The  corporation  is  one  de  facto  ;  and  only  the  State 
can  then  inquire  —  and  that  in  a  direct  proceeding  —  whether  it  be  one 
dejure.  .  .  .  There  must  in  such  cases  be  a  law  under  which  the 
incorporation  can  be  had.  There  must  also  be  an  attempt  in  good 
faith  on  the  part  of  the  incorporators  to  incorporate  under  such  law. 
And  when,  after  this,  there  has  been  for  a  series  of  years  an  actual, 
open,  and  notorious  exercise,  unchallenged  by  the  State,  of  the  powers 
of  a  corporation,  one  who  is  sued  on  a  note  held  by  such  corporation 
will  not  be  permitted  to  question  the  validity  of  the  incorporation  as  a 
defence  to  the  action.  No  mere  matters  of  technical  omission  in  the 
incorporation,  no  acts  of  forfeiture  from  misuser  after  the  incorporation, 
are  subjects  of  inquiry  in  such  an  action."  The  attempt  to  incorporate, 
referred  to  in  that  case,  must  be  something  more  than  the  mere  physi- 
cal organization,  or  formal  arrangement  into  a  working  force,  of  the 
promoters  of  the  enterprise.  Something  must  be  done  beyond  the  mere 
transaction  of  business  in  the  manner  and  form  usually  adopted  by 
corporations.     There  must  also  lie  something  more   tangible  and  effec- 

is  intended. 
^TicTsteps  taken  ancTThe  attempt  made  must,  to  some  extTmTjmdjii 
o^ipo  'i^-pfi^av^n^suited  in  the  en'cM^ingJ^fJjjTisL^^  . 

law  designates  as  aprc'rc-gius'iLe  to  a_co"rporate  existence,  however 


formal  and  irregular  such  proceedings  and  results  may  be.     Had  the 


44  THE    FORMATION    OF   A   PARTNERSHIP.  [CHAP.  I. 

articles  of  incorporation  been  prepared  and  recorded  or  filed  as  required 
by_the  statute,  and  the  organization  had   been   otherwise  effected  as 
shown  in  this  case,  no  question  could _b^Jjiusj^isecL  as  to  the  fact  of^ 
a  corporate   existence  because_of  defects— and-  irregularities  in  the  at- 
tempted nWynnly.MTTon  orjnjih£articles  of  IncorporaUon.     But,  an  entire 
failure  orrthTT^iLP-f  jthft~oflieers  oiLtheJaank  to  prepare  and  execute  the 
^certificate  or  articles  of  incorporation  required  bv  law  and  an  entire 
failure  to  file  a  certificate  or  statement  of  any  kind  whatever  in  the 
joffice  of  the^registerjrfjfeeds  of  the  county,  or  in   the  office,  of  the 
secretary  of  state,  left  the  organ izers  ofjthjs_baak_without  a  shadow_of_ 
leo-al  corporate_existejiciiir  There  Ivas  no  substantial  compliance  with 
the  law,  and  there  could  be  no  de  facto  corporation.    We  are  supported 
in  this  conclusion  by  the  following  cases :     Bigelow  v.  Gregory,  73  111. 
197;  Kaiser  v.  Bank,  56  Iowa,  104;  Sheble  v.  Strong,  128  Pa.   St. 
315  ;  Hill  v.  Beach,  12  N.  J.  Eq.  31  ;  Stout  v.  Zulick,  48  N.  J.  Law, 
599  ;  Abbott  v.  Smelting  Co.,  4  Neb.  416  ;  Society  Perun  v.  Cleveland, 
43  Ohio  St.  481  ;  Railroad  Co.  v.  Cary,  26  N.  Y.  77  ;  Hurt  v.  Salisbury, 
55  Mo.  310  ;  Smelting  Co.  v.  Richards,  95  Mo.  106  ;  Whipple  v.  Par- 
ker, 29  Mich.  369.     In  the  cases  cited,  there  was  a  failure  on  the  part 
of  the  organizers  of  the  claimed  corporation  to  do  some  act,  generally 
the  neglect  to  file  the  articles  of  association  or  incorporation,  made  by 
the  statute  a  prerequisite  to  corporate  existence ;  and  the  rule  clearly 
and  forcibly  laid  down  is  that  in  such  cases  there  is  no  de  facto  corpo- 
ration,   and   that   the  claimed   corporate   existence  may  be   attacked 
collaterally.     An   exception  to  this  rule  exists  in  cases  where  one  is 
sued  by  the  alleged  corporation  upon  a  contract  in  which  the  corporate 
capacity  is  recognized.     To  this  effect  are  Jones  v.  Foundry  Co.,  14 
Ind.  89  ;  Meikel  v.  Fund  Soc,  16  Ind.  181  ;  Irrigation  Co.  v.  Warner, 
72  Cal.  379  ;  Massey  v.  Building  Ass'n,  22  Kan.  379.     In  those  cases 
another  principle  is  invoked,  which  does  not  permit  a  party  to  avoid 
the  obligation  of  his  contracts  upon  the  mere  technical  objection  that 
the  party  with  whom  he  contracted  had  not  the  legal  capacity  to  enter 
into  the  contract  of  which  he  has  had  the  benefit.     The  distinction  be- 
tween that  class  of  cases  and  the  case  under  consideration  is  obvious. 
It  is  equally  well  settled  that  a  substantial,  though  imperfect  and  irregu- 
lar, compliance  with  the  law,  in  a  bona  fide  attempt  to   incorporate, 
followed  by  a  user  ofjcorfrorate  rights,  will  create  a  de  facto jmi&nniliaxL, 
as  the  corporate  existence   cannot   be_  collaterally  questioned  bygone. 
ripnHjg  with  it  as  a  corporation.     To  this  effect  are  Bakers.  J\reff,  73 
Ind.  68;  Williamson  v.  Ass'n,  89  Ind.  389;  Rice  v.  Railroad  Co.,  21 
111.  93  ;  Railroad  Co.  v.  Cary,  26  N.  Y.  75  ;  Mining  Co.  v.  Woodbury, 
14  Cal.  424  ;  Oroville,  etc.,  R.  Co.  v.  Plumas  Co.,  37  Cal.  361 ;  Swart- 
wout  v.  Railroad  Co.,  24  Mich.  389. 

We  think  the  facts  shown  by  the  record  justified  the  trial  court  in  hold- 
ing  the  plnjnli-ffs  ""*  en'or  liaole  as  partners  for  Jhedebts  of  the  bank. 
The  Tud*gmenTwill  be  affirmed.     AU_Jh^jud§eXio«eu«4egJ_, 

1  A  part  of  the  opinion  relating  to  a  question  of  pleading  has  been  omitted. 


V 


$-<* 


CHAPTER   II. 

partnership  as  to  third  persons. 

§  1.    Test  of  Shaking  Profits. 

BLOXHAM  et  al.  v.  PELL  et  al. 
2  Wra.  Bl.  999.     1775.1 


This  was  also  a  partnership  for  seven  years  between  Brooke  and 
Pell ;  but  at  the  end  of  one  }*ear  agreed  to  be  dissolved,  but  no  express 
dissolution  was  had.  The  agreement  recited  that  Brooke,  being  desir- 
ous to  have  the  profits  of  the  trade  to  himself,  and  Pell  being  desirous 
to  relinquish  his  right  to  the  trade  and  profits,  it  was  agreed  that 
Brooke  should  give  Pell  a  bond  for  £2,485,  which  Pell  had  brought 
into  the  trade,  with  interest  at  five  per  cent,  which  was  accordingly 
done.  And  it  was  further  agreed  that  Brooke  should  pay  to  Pell  £200 
per  annum  for  six  j'ears,  if  Brooke  so  long  lived,  as  in  lieu  of  the 
profits  of  the  trade ;  and  Brooke  covenants  that  Pell  should  have  free 
liberty  to  inspect  his  books.  Brooke  became  a  bankrupt  before  any- 
thing was  paid  to  Pell.  And  this  action  being  brought  for  a  debt  in- 
curred by  Brooke  in  the  course  of  trade,  Lord  Maxsfield  held  that 
Pell  was  a  sp^rpt  ppflt.nsK-  This  was  a  device  to  make  more  than  legal 
interest  of  money,  and  if  it  was  not  a  partnership,  it  was  a  crime. 
And  it  shall  not  lie  in  the  defendant  Pell's  mouth  to  say,  "  It  is  usury, 
and  not  a  partnership." 2 


II? 


GRACE  v.   SMITH. 

2  Wru.  Bl.  998.     1775. 

De  Grey,  C.  J.,  reported  that  this  was  an  action  brought  against 
Smith  alone  as  a  secret  partner  with  one  Robinson  (vide  Abbot  and 
Smith,  ante,  p.  947),  to  whom  the  goods  were  delivered,  and  who 
became  bankrupt  in  1770.  That  on  the  30th  of  March,  1767,  Smith 
and  Robinson  entered  into  partnership  for  seven  3-ears,  but  in  the 
November  afterward,  some  disputes  arising,  they  agreed  to  dissolve 

1  Reported  in  the  argument  of  plaintiff's  counsel,  in  Grace  v.  Smith,  2  Win.  Bl.  998. 

2  "This  view  of  the  transaction  had  the  merit  of  apparently  holding  the  parties  t>> 
their  bargain  ;  but,  in  truth,  the  bargain  to  which  they  were  held  was  very  different 
from  that  which  they  themselves  had  contemplated  ;  and  by  treating  such  transactions 
as  partnerships  and  not  as  loans,  an  amount  <>f  confusion  \v;is  introduced  into  this 
branch  of  the  law  which  even  the  repeal  of  the  usury  laws  failed  to  remove."  1  Lind 
Par.  5th  Eng.  Ed.,  16. 


46  PARTNERSHIP   AS    TO   THIRD    PERSONS.  [CHAP.  IL 

the  partnership.     The  articles  were  not  cancelled,  but  the  dissolution 
was  open  and  notorious,  and  was  notified  to  the  public  on  the  17th  of 
November,  1767.     The  terms  of  the  dissolution  were  that  all  the  stock 
in  trade  and  debts  due   to  the  partnership  should  be  carried  to  the 
account  of  Robinson   only.     That   Smith  was   to  have  back  £4,200 
which  he  brought  into  the  trade,  and  £1,000  for  the  profits  then  ac- 
crued since  the  commencement  of  the  partnership  ;  that  Smith  was  to 
lend   Robinson  £4,000,  part   of  this  £5,200,  or  let  it  remain  in  his 
hands  for  seven  years  at  five  per  cent  interest,  and  an  annuity  of  £300 
per  annum,  for  the  same  seven  years.     For  all  which  Robinson  gave 
bond  to  Smith.     In  June,  1768,  Robinson  advanced  to  Smith  £600  for 
two  years'  payment  of  the  annuity  and  other  sums  by  the  way  of  in- 
terest and  gratuities,  and  other  large  sums  at  different  times,  to  enable 
him  to  pay  the  partnership  debts,  Smith  having  agreed  to  receive  all 
that  was  due  to  the  partnership,  and  to  pay  its  debts,  but  at  the  hazard 
of  Robinson.     That  on  the  1st  of  August,  1768,  the  demands  of  Smith 
were  all  liquidated  and  consolidated  into  one,  viz.,  £5,200  due  to  him 
on  the  dissolution  of  the  partnership,  £1„500  for  the  remaining  five 
years  of  the  annuity,  and  £300  for    Smith's   share  of  a  ship  ;  in  all 
£7,000,  for  which  Robinson  gave  a  bond  to  Smith.     That  on  the  22d 
of  August,  1769,  an  assignment  was  made  of  all  Robinson's  effects  to 
secure  the  balance  then  due  to  Smith,  which  was  stated  to  be  £10,000. 
Soon  after  the  commission  was  awarded.   .    / 
Davy,  for  the  plaintiff.  ** 

y*\2y^  '  Grose  &  Adair,  for  the  defendant. 

De  Grey,  C.  J.     The  only  question  is,  What  constitutes  a  secret 
partner?     Every  man  who  has  a  share  of  the  profits  of  a  trade  ought 
also  to  bear  his  share  of  the  loss.     And  if  any  one  takes  part  of  the 
profit  he  takes  a  part  of  that  fund  on  which  the  creditor  of  the  trader 
relies  for  his  payment.     If  any  one   advances   or  lends    money  to  a 
trader,  it  is  only  lent  on  his  general  personal  security.     It  is  no  specific 
lien  upon  the  profits  of  the  trade,  and  yet  the  lender  is  generally  inter- 
ested in  those  profits  ;  he  relies  on  them  for  repayment.     And  there  is 
no  difference  whether  that  money  be   lent  de  novo  or    left  behind  in 
trade  by  one  of  the  partners  who  retires.     And  whether  the  terms  oi 
that  loan  be  kind  or  harsh  makes   also    no   manner  of  difference.     I 
think  the  true  criterion  is  to  inquire  whether  Smith  agreed  to  share  the 
profits  of  the  trade  with  Robinson,  or  whether  he  only  relied  on  those 
profits  as  a  fund  of  payment ;  a  distinction  not  more  nice  than  usually 
occurs  in  questions  of  trade  or  usury.     The  jury  have  said  that  this  is 
not  payable  out  of  the  profits,  and  I  think  there  is  no  foundation  for 
granting  a  new  trial.1 

1  Gould,  Blackstone,  and  Naees,  JJ.,  concurred. 


§  1.]  TEST   OF   SHARING    PROFITS.  47 

WAUGH    v.  CARVER   et   al. 
2  H.  Bl.  2:;.').     17'Jo. 

Assumpsit  against  Erasmus  Carver,  William  Carver,  and  A.  Giesler  for 
goods  sold  and  delivered  by  plaintiff  to  Giesler  at  his  agency  at  Cowes. 
The  Carvers  denied  that  they  were  partuers  with  Giesler.  Verdict  for 
the  plaintiff,  subject  to  the  opinion  of  the  court  on  a  case  stated. 

The  Carvers  as  parties  of  the  one  part  entered  into  a  written  agree- 
ment with  Giesler  on  the  other  part,  which  provided  that  Giesler  should 
remove  his  ship-agency  from  Plymouth  to  Cowes,  in  the  Isle  of  Wight, 
"  for  the  purpose  of  carrying  on  a  house  there  in  the  agency  line,  on 
his  account ;  "  that  the  Carvers  should  continue  to  carry  on  their  busi- 
ness in  the  same  line  at  Gosport,  and  that  each  house,  in  consid- 
eration of  the  mutual  promises  of  assistance  and  recommendation, 
"  should  allow  to  the  other  certain  portions  of  each  other's  commissions 
and  profits."  After  specifying  these  portions  the  agreement  declared  : 
"And  in  order  to  prevent  any  misunderstanding  or  disputes,  with 
respect  to  the  commission  and  discount  to  be  paid  and  divided  between 
the  said  Erasmus  Carver  and  William  Carver  and  the  said  Archibald 
Giesler,  and  for  the  better  ascertaining  thereof,  it  is  hereby  mutually 
covenanted,  declared,  and  agreed  upon,  between  the  said  Erasmus  Carver 
and  William  Carver,  and  the  said  Archibald  Giesler,  that  one-fifth  part  of 
the  commission  or  agency  on  each  ship  shall  and  may  be  first  retained  by 
the  party  under  whose  care  such  ship  or  vessel  shall  be,  as  a  full  com- 
pensation for  clerks,  boat-hire,  and  all  other  incidental  charges  and  ex- 
penses in  regard  of  such  ships  or  vessels  respectively  ;  after  which 
deduction,  the  then  remaining  balance  of  such  commissions  or  agency 
shall  be  divided  between  the  said  Erasmus  Carver  and  William  Carver 
and  the  said  Archibald  Giesler,  in  the  proportion  hereinbefore  men- 
tioned ;  and  that  such  commission  or  agency  shall  be  ascertained  by 
one  party's  producing  to  the  other  true  and  authentic  copies  of  the 
general  accounts  of  each  ship  or  vessel  under  their  respective  care  and 
direction,  signed  by  the  several  masters  of  such  ships  or  vessels  re- 
spectively, and  notarially  authenticated."  "And  also  that  they,  the 
said  Erasmus  Carver  and  William  Carver  and  the  said  Archibald 
Giesler,  shall  and  will  meet  at  Gosport  on  or  about  the  first  day  of 
September  yearly,  for  the  purpose  of  examining  and  settling  their 
accounts  concerning  the  said  commission  business,  and  that  such  party 
from  whom  the  balance  shall  then  appear  to  be  due  shall  and  will  well 
and  truly  pay  or  secure  the  same  unto  the  other  party,  his  executors, 
administrators,  or  assigns,  on  or  before  the  29th  day  of  the  said  month 
of  September  yearly.  And  it  is  hereby  likewise  covenanted,  declared, 
and  agreed,  by  and  between  the  said  Erasmus  Carver  and  William 
Carver  and  the  said  Archibald  Giesler,  that  each  party  shall  sepa- 
rately run  the  risk  of,  and  sustain  all  such  loss  and  losses  ,ms  may 
happen  on  the  advance  of  moneys,  in  respect  of  any  ships  or  vessels 


0{ 


48  PARTNERSHIP   AS   TO    THIRD    PERSONS.  [CHAP.  IL 

under  the  immediate  care  of  either  of  the  said  parties  respectively  ;  it 
being  the  true  intent  and  meaning  of  these  presents,  and  of  the  parties 
hereunto,  that  neither  of  them,  the  said  Erasmus  Carver  and  William 
Carver  and  Archibald  Giesler,  shall,  at  any  time  or  times  during  the 
continuance  of  this  agreement,  be  in  any  wise  injured,  prejudiced,  or 
affected  by  any  loss  or  losses  that  may  happen  to  the  other  of  them,  or 
that  either  of  them  shall  in  any  degree  be  answerable  or  accountable 
for  the  acts,  deeds,  or  receipts  of  the  other  of  them,  but  that  each  of 
them,  the  said  Erasmus  Carver  and  William  Carver  and  Archibald 
Giesler,  shall,  in  his  own  person  and  with  his  own  goods  and  effects, 
respectively  be  answerable  and  accountable  for  his  own  losses,  acts, 
deeds,  and  receipts."  "  And  it  is  hereby  further  covenanted,  declared, 
and  agreed,  by  and  betweeu  the  said  Erasmus  Carver  and  William 
Carver  and  Archibald  Giesler,  that  these  presents  do  not  nor  shall  be 
construed  to  mean  to  extend  to  such  ships  or  vessels  that  may  come  to 
the  address  of  either  of  the  said  parties  respectively,  for  the  purpose  of 
loading  or  delivering  any  goods,  wares,  or  merchandise,  it  being  the 
true  intent  and  meaning  of  these  presents,  and  the  parties  hereunto, 
that  the  foregoing  articles  shall  not,  nor  shall  be  construed  to,  bear 
reference  to  their  particular  or  separate  mercantile  concerns  or  con- 
nections." 

The  case  was  twice  argued  :  the  first  time  by 
Clayton,  Serjt.,  for  the  plaintiff, 

Hooke,  Serjt.,  for  the  defendants  ;  and  a  second  time  by 
Le  Blanc,  /Serjt.,  for  the  plaintiff, 
Lawrence,  Serjt.,  for  the  defendants. 

Lord  Chief  Justice  Eyre.  This  case  has  been  extremely  well 
argued,  and  the  discussion  of  it  has  enabled  me  to  make  up  my  mind, 
and  removed  the  only  clifTiculty  I  felt,  which  was,  whether,  by  constru- 
ing this  to  be  a  partnership,  we  should  not  determine,  that  if  there  was 
an  annuity  granted  out  of  a  banking-house  to  the  widow,  for  instance, 
of  a  deceased  partner,  it  would  make  her  liable  to  the  debts  of  the 
house,  and  involve  her  in  a  bankruptcy.  But  I  think  this  case  will 
not  lead  to  that  consequence. 

The  definition  of  a  partnership  cited  from  Puffendorf  is  good  as 
between  the  parties  themselves,  but  not  with  respect  to  the  world  at 
large.  If  the  question  were  between  A.  and  B.,  whether  the}'  were 
partners  or  not,  it  would  be  very  well  to  inquire  whether  they  had 
contributed,  and  in  what  proportions,  stock  or  labor,  and  on  what 
agreements  they  were  to  divide  the  profits  of  that  contribution.  But 
in  all  these  cases  a  very  different  question  arises,  in  which  the  defini- 
tion is  of  little  service.  The  question  is,  generally,  not  between  the 
parties  as  to  what  shares  they  shall  divide,  but  respecting  creditors 
claiming  a  satisfaction  out  of  the  funds  of  a  particular  house,  who  shall 
be  deemed  liable  in  regard  to  these  funds.  Now,  a  case  may  be  stated, 
in  which  it  is  the  clear  sense  of  the  parties  to  the  contract  that  they 
shall  not  be  partners ;  that  A.  is  to  contribute  neither  labor  nor  money, 


§  1.1  TEST   OF    SHAKING   PROFITS.  49 

and,  to  go  ctmfiirthpr,  not  to  wwirp  nnv  profits.   J3ot_if  he  will  lend 
hj^  nmnTr'Tr^^"neijJlg  becomes,  as  against  all  therest.ot  the  wofuT. 
a  partner*  not  upon  the~ground  of  the  real  transaction  between  them, 
but   upon  principles  of  general  policy,  to  prevent   the   frauds  to  which 
creditors  wouiQjLlial3f£" if  they  weTe~t'o  suppose  that  they  lent  their 
money_ujK>n  the  apparent  credit,  of  three  or  four  persons,  wiien  liTfact 
they  lent  it  only  to  two  of  them,  to  whom,  without  the  others,  they  would 
have  lent  nothing.}   The  argument  gone  into,  however  proper  for  the, 
discussion  of  the  question,   is  irrelevant  to  a  great  part  of  the  case. 
Whether  these  persons  were  to  interfere  more  or  less  with  their  advice 
and  directions,  and  many  small  parts  of  the  agreement,  I  lay  entirely  out 
of  the  case  ;  because  it  is  plain  upon  the  construction  of  the  agreement, 
if  it  be  construed  only  between  the  Carvers  and  Giesler,  that  they  were 
not,  nor  ever  meant  to  be  partners.     They  meant  each  house  to  carry 
on   trade   without   risk  of  each   other,  and  to  be   at  their  own  loss. 
Though  there  was   a  certain  degree  of  control   at  one  house,  it  was 
without  an  idea  that  either  was  to  be  involved  in  the  consequences  of 
the  failure  of  the  other,  and  without  understanding  themselves  respon- 
sible for  any  circumstances  that  might  happen  to  the  loss  of  either. 
That  was  the  agreement  between  themselves.      But  the  question   is, 
whether  they  have  not,  by  parts  of  their  agreement,  constituted  them- 
selves partners  in  respect  to  other  persons.     The  case,  therefore,  is 
reduced  to  the  single  point,  whether  the  Carvers  did  not  entitle  them- 
selves, and  did  not  mean  to  take  a  moiety  of  the  profits  of  Giesler's 
house,  generally  and  indefinitely  as  they  should  arise,  at  certain  times 
agreed  upon  for  the  settlement  of  their  accounts.     That  they  have  so 
done  is  clear  upon  the  face  of  the  agreement ;  and  upon  the  authority 
of  Grace  v.  Smith,  he  who  takes  a  moiety  of  all  the  profits  indefinitely 
shall,  by  operation  of  law,  be  made  liable  to  losses,  if  losses  arise, 
upon  the  principle  that,  by  taking  a  part  of  the  profits,  he  takes  from 
the  creditors  a  part  of  that  fund  which  is  the  proper  security  to  them  for 
the  payment  of  their  debts.     That  was  the  foundation  of  the  decision 
in  Grace  v.  Smith,  and  I  think  it  stands  upon  the  fair  ground  of  reason. 
I  cannot  agree  that  this  was  a  mere  agency,  in  the  sense  contended  for 
on  the  part  of  the  defendants,  for  there  was  a  risk  of  profit  and  loss : 
a  ship  agent  employs  tradesmen  to  furnish  necessaries  for  the  ship  ;  he 
contracts   with  them  and  is  liable  to  them  ;   he  also  makes  out  their 
bills  in  such  a  way  as  to  determine  the  charge  of  commission  to  the 
ship  owners.     With  respect  to  the  commission,  indeed,  he  may  be  con- 
sidered as  a  mere  agent,  but  as  to  the  agency  itself,  he  is  as  much  a 
trader  as  any  other  man,  and  there  is  as  much  risk  of  profit  and  loss, 
to  the  person  with  whom  he  contracts,  in  the  transactions  with  him,  as 
with  any  other  trader.     It  is  true  he  will  gain  nothing  but  his  discount  ; 
but  that  is  a  profit  in  the  trade,  and  there  may  be  losses  to  him  as  well 
as  to  the  owners.      If,  therefore,  the  principle  be   true,  that  he    who 
takes  the  general  profits  of  a  partnership  must  of  necessity  be  made 
liable  to  the  losses,  in  order  that  he  may  stand  in  a  just  situation  with 


4 


50  PARTNERSHIP  AS  TO  THIRD  PERSONS.      [CHAP.  II. 

regard  to  the  creditors  of  the  house,  then  this  is  a  case  clear  of  all 
difficult}-.  For  though  with  respect  to  each  other  these  persons  were 
not  to  be  considered  as  partners,  yet  they  have  made  themselves  such, 
with  regard  to  their  transactions  with  the  rest  of  the  world.  I  am 
therefore  of  opinion  that  there  ought  to  be  judgment  for  the  plaintiff. 

Gould,  J.     I  am  of  the  same  opinion. 

Heath,  J.     I  am  of  the  same  opinion. 

Rooke,  J.,  having  argued  the  case  at  the  bar,  declined  giving  an}' 
opinion. 

Judgment  for  the  plaintiff . 


§  2.     Various  Exceptions  to  the  Old  Eule. 

LEGGETT  v.  HYDE. 

58  N.  Y.  272.     1874. 

Folger,  J.  At  the  trial  each  part}'  asked  the  court  to  direct  a  ver- 
dict in  its  favor.  Each  thereby  conceded  that  there  could  be  no  dispute 
upon  any  question  of  fact ;  each  thereby  conceded  that  there  was  left 
for  decision  only  a  question  of  law,  and  that  it  arose  upon  a  settled  and 
uncontradicted  state  of  facts. 

Taking  the  view  of  the  testimony  the  most  favorable  for  the  appellant, 
the  facts  are  these:  In  1869  one  Putnam  and  Henneberger  were  part- 
ners in  business  under  the  firm  name  of  A.  D.  Putnam  &  Co.  In  that 
year  the  appellant  invested  or  deposited  with  that  firm  $1,500.  This 
sum  was  credited  on  its  books  to  Frederick  Hyde,  the  son  of  the  appel- 
lant ;  for  this  sum  the  appellant  was  to  share  in  the  profits  of  the 
business  of  the  firm.  His  share  was  to  be  one-third,  and  demand- 
able  by  him  at  the  end  of  the  year.  At  the  end  of  the  year  his  share 
of  the  profits  was  $500.  This  sum  was  also  placed  to  the  credit  of 
Frederick  Hyde  ;  then,  in  1870,  the  appellant  loaned  to  the  firm,  for 
one  year,  the  original  sum  of  $1,500  and  the  $500  of  profits,  thus  mak- 
ing $2,000.  In  consideration  of  this  loan  the  firm  agreed  to  hire 
Frederick  Hyde  as  clerk,  at  $10  per  week  for  the  year ;  to  pay  the  appel- 
lant one-third  of  the  profits,  which  were  to  be  settled  half-yearly  ;  and  at 
the  end  of  the  year  to  take  him  in  as  a  partner,  if  the  firm  and  he  should 
feel  satisfied,  on  his  making  further  investments  and  putting  in  more 
capital.  Though  it  is  nowhere  in  the  testimony  so  stated  in  terms,  yet 
it  is  fairly  to  be  inferred  that  the  $2,000  was  loaned  to  be  used  in  the 
business,  and  that  if  at  the  end  of  the  year  the  appellant  did  not  become 
an  ostensible  partner  he  was  to  be  repaid  out  of  the  concern  the  $2,000, 
but  without  interest  strictly  as  such.  The  appellant  never  interfered  in 
the  affair  of  the  concern,  nor  exercised  any  control  in  the  business.  At 
the  end  of  the  first  six  months  there  were  no  profits  of  the  business. 
The  appellant  never  received  anything  for  his  $2,000,  nor  anything  by 
way  of  interest  money. 


§  2.]        VARIOUS  EXCEPTIONS  TO  THE  OLD  RULE.  51 

The  prominent  and  important  facts  are,  that  he  loaned  the  firm  a  sum 
of  money  £9^:  loyed  as  capital  iu  its  business,  and  that,  therefore, 

he_gas-£iititle4~ta  have  and  demand  from  it,  one-third  of  the  profits  of 
it^hn^inpg"  pypi-y  hnlf-ynar.  In  my  judgment  there  results  from  this, 
that  Putnam  and  Heuneberger,  making  use  of  that  money  as  capital  in 
that  business,  used  it  there  for  the  benefit  of  the  appellant ;  because 
any  return  to  him  for  the  loan  to  them  must  come  from  the  use  of  it. 
If  not  used  so  that  profits  were  made,  he  got  no  return.  Further,  that 
he  had  an  interestTn~Uie~prouts  which,  while  they  were  anticipatory,  was 
indefinite  as  to  amount,  but,  when  they  were  realized,  was  measured 

?^X°ppnifin  rifi  to  et"",°     FnrH'ori  titiat  toil*  'ntprpgt  -n  thsm  waR  in ^ftin 

as  profits  :  that  is,  that  he  had  a  right  on  the  lapse  of  every  six  mouths, 
though  having  no  property  in  the  whole  capital,  to  have  an  account^jV/. 
taken  of  the  business  and  a  division  made  of  the  profits  then  appearing. 
Ex  parte  Hampen,  17  Ves.  403.  That  he  had  this  right  to  an  account 
and  a  division  at  other  time  than  at  the  end  of  each  six  months,  if,  at 
any  other  times,  the  exigencies  of  the  concern  —  as  the  dissolution  of 
the  firm  bj*  death  of  one  partner,  or  an}'  other  reason  —  required  an 
account  to  be  taken.  He  had  that  interest  in  the  profits,  as  profits, 
because  he  could  claim  a  share  of  them  specifically,  as  they  should 
appear  on  each  six  months,  or  other  accounting  of  the  business  of  the 
term  then  ended,  and  could  then  have  and  demand  payment  of  his 
share.  By  the  terms  of  his  contract  with  the  firm,  if  it  be  upheld  as 
made,  he  was  interested  in  and  affected  by  the  results  only  of  the  \-ear, 
as  ascertained  at  the  end  of  each  six  months.  It  would  not  affect  him 
in  this  right  to  account,  though  the  business  of  a  previous  year  had  been 
disastrous.  If  either  six  months'  business  should  yield  a  profit,  he  could 
insist  on  payment  to  him  of  one-third  thereof,  and  could  demand  that  an 
account  be  had  of  the  business  of  any  six  months,  to  ascertain  if  there 
had  been  profits.  It  was  one-third  of  the  profits  that  he  was  to  have, 
and  not  a  sum  in  general  equal  to. that  one-third  ;  so  that  he  was  to  take 
it  as  profits,  and  not  as  an  amount  due  —  not  as  a  measure  of  compen- 
sation, but  as  a  result  of  the  capital  and  industry.  So  it  is  said  in 
Everett  v.  Coe,  5  Denio,  182  :  --  It  ne  is  to  be  paid  out  of  profits  made, 
then  he  has  a  direct  interest  in  them.''  And  see  Ogden  r.  Astor,  4 
Sandf.  32I^2?:~TrirrrGaTned  counsel  for  the  appellant  states  the  question 
of  law  to  be  this  :  Does  a  loan  of  money,  with  an  agreement  for  compen- 
sation from  the  profits  of  the  business,  per  se,  constitute  the  lender  a 
partner  quoad  the  creditors  of  the  firm?  Is  this  statement  of  it  correct? 
Does  the  phrase  "  compensation  from  the  profits  "  full}*  meet  the  case? 
Does  it  fully  present  the  fact  that  by  the  agreement  the  appellant 
obtains  an  interest  in  the  profits,  as  such,  and  a  right  to  insist  upon  an 
accounting  and  a  division  thereof  half-yearly?  With  this  supplement, 
the  question  for  decision  is  as  stated  b}'  him. 

I  am  not  to  say  what  I  think  ought  to  be  the  answer  to  it,  was  this  :i 
case  of  first  impression.  I  am  to  declare  what  I  ascertain  to  be  the 
answer  already  given  by  the  law  in  this  State,  as  it  has  been  .settled, 


52  PARTNERSHIP    AS   TO    THIKD    PERSONS.  [CHAP.  II. 

and  declared  b}r  the  authorities.  The  argument  of  the  learned  counsel 
is  very  ingenious,  and  very  forcible  when  considered  in  reference  to 
what  should  be  the  proper  rule,  and  what  the  true  reasons  upon  which 
a  rule  should  be  founded.  Yet  if  it  is  found  that,  b}'  a  long  course  of 
decisions  or  by  long  acquiescence  in  and  adherence  to  a  rule  some  time 
ago  authoritatively  promulgated,  there  has  been  established  a  principle 
of  commercial  law  upon  which  the  community  has  acted,  it  is  the  duty  of 
the  courts  to  adhere  thereto,  leaving  it  to  the  law-making  power  to  find  a 
remedy,  if  remedy  be  needed,  in  a  positive  authoritative  enactment.  In 
England  this  has  been  done,  and  b}r  act  of  Parliament  an  important 
\  change  has  been  made.  28  &  29  Vic.  ch.  86.  In  the  first  place  it 
\  matters  not  that  the  defendants  meant  not  to  be  partners  at  all  and 
~~  were  not  partners  inter  sese.  They  ma}'  be  partners  as  to  third  persons, 
notwithstanding  Manhattan  Brass  Co.  v.  Sears,  45  N.  Y.  797,  and  this 
effect  may  result,  though  they  should  have  taken  pains  to  stipulate 
among  themselves  that  the}'  will  not  in  any  event  hold  the  relation  of 
partners.  Among  the  reasons  given  is  this,  whether  it  be  strong  or 
weak  :  That  whatever  person  shares  in  the  profits  of  an}'  concern  shall 
be  liable  to  creditors  for  losses  also,  since  he  takes  a  part  of  the  fund 
which  in  great  measure  is  the  creditors'  security  for  the  payment  of 
debts  to  them.  Waugh  v.  Carver,  2  H.  Bl.  235,  citing  Grace  v.  Smith, 
2  Black.  998.  The  doctrine  took  its  rise  in  the  decisions  in  these  cases. 
And  commenting  upon  them  the  text  writers  who  have  presented  most 
forcible  criticisms  upon  it  say  :  "  The  principle  laid  down  b}'  De  Gra}', 
C.  J. ,  in  Grace  v.  Smith  has  served  as  the  foundation  of  a  long  line  of 
decisions  which  cannot  now  be  overruled  by  any  authority  short  of  that 
of  the  legislature  ;  and  in  all  cases  in  which  there  is  no  incorporation, 
nor  limited  liability,  it  must  still  be  regarded  as  binding  on  the  courts." 
Lindley  on  Part.  36.  "  The  doctrine  is  completely  established  upon  the 
very  ground  asserted  in  Grace  v.  Smith.  Story  on  Part.  §  36,  note  3  ; 
and  so  Mr.  Parsons,  in  his  book  on  Partnership,  quoting  Lord  Eldon, 
Ex  parte  Hamper:  "But  if  he  has  a  specific  interest  in  the  profits 
themselves,  as  profits,  he  is  a  partner,"  adds:  "Undoubtedly  he  is; 
every  principle  of  the  law  of  partnership  leads  to  this  conclusion."  He 
contends,  however,  that  the  specific  interest  in  profits  which  is  to  make  a 
person  a  partner  must  be  a  proprietary  interest  in  them  existing  before 
the  division  of  them  into  shares.  See  also  1  Kent's  Com.  25,  note  v, 
where  it  is  said  :  The  test  of  partnership  is  a  community  of  profits  —  a 
specific  interest  in  the  profits  .g.s  profits.—  in  contradistinction  to  a 
stipulated  portion  of  the  profits  as  a  compensation  for  services. 

The  courts  of  this  State  have  always  adhered  to  this  doctrine  and 
applied  or  recognized  it  in  the  cases  coming  before  them.  In  Walden 
v,  Sherburne,  15  J.  R.  409,  in  1819,  Spencer,  J.,  delivering  the  opinion 
of  the  court,  says  :  "  No  principle  is  better  established  than  that  eveiy 
person  is  to  be  deemed  in  partnership  if  he  is  interested  in  the  profits  of 
a  trade,  and  if  the  advantages  which  he  derives  from  the  trade  are 
casual  and  indefinite,  depending  on  the  accidents  of  trade.     See  also 


§  2.]        VARIOUS  EXCEPTIONS  TO  THE  OLD  RULE.  53 

Dob  v.  Halsey,  16  J.  R.  34,  in  the  same  year.  The  principle  is  recog- 
nized in  Chase  v.  Barrett,  4  Paige,  148,  by  Walworth,  Chancellor;  in 
1833  by  the  Court  of  Errors,  per  Walworth,  Ch. ;  in  1837  in  Champion 
v.  Bostwick,  18  Wend.  175  ;  by  the  Supreme  Court  in  1841,  per  Cowen, 
J.,  in  Cushman  v.  Bailey,  1  Hill,  526  ;  and  again  in  1848,  per  Beardsly, 
Ch.  J.,  in  Everett  v.  Coe,  5  Denio,  180;  by  the  Superior  Court  of  the 
city  of  New  York,  per  Sand  ford,  J.,  in  Oakley  v.  Aspinwall,  2  Sandf. 
7-21  ;  by  the  present  Supreme  Court  in  repeated  decisions,  of  which 
see  Catskill  Bank  v.  Gray,  14  Barb.  471  ;  Hodgeman  v.  Smith,  13  Id. 
302;  by  the  Court  of  Appeals,  per  Peckham,  J.,  in  Manhattan  Brass 
Co.  v.  Sears,  45  N.  Y.  797;  per  Leonard,  C,  Ontario  Bank  v.  Hen- 
nessy,  48  Id.  545-552  ;  per  Gardiner,  J.,  Barckle  v.  Eckhart,  3  Id. 
132-138. 

It  is  not  too  much  to  say  the  Limited  Partnership  Act  (1  R.  S.  7G4)  is  a 
legislative  and  practical  recognition  of  this  rule  of  commercial  law.  In 
deed,  if  it  shall  be  held  that  such  a  contract  as  that  of  the  appellant  does 
not  make  him  a  partner  as  to  third  persons,  there  is  little  or  no  need  of 
that  act.  The  situation  of  the  special  partner  is  more  onerous  than 
that  of  the  appellant  under  such  a  ruling.  The  first  may  lose  his  capi- 
tal invested,  as  well  as  profits,  by  the  same  being  absorbed  in  the  pay- 
ment to  creditors.  The  latter  may  lose  his  anticipated  compensation^, 
for  his  money  loaned,  but  his  position  is  quite  as  favorable  to  him  as 
that  occupied  by  creditors  for  the  recovery  of  his  money  advanced. 
Neither  may  interfere  —  to  transact  business  or  to  sign  for  the  firm,  or 
to  bind  the  same ;  both  may  advise  as  to  the  management ;  both  may 
examine  into  the  state  and  progress  of  the  partnership  concerns  —  the 
special  partner  from  time  to  time,  the  appellant  at  the  end  of  every  six 
months.  In  one  respect  the  special  partner  is  better  placed.  He  ma}' 
stipulate  for  legal  interest  on  his  capital  invested,  as  well  as  for  a  por- 
tion of  the  profits.  The  appellant,  if  he  bargained  for  profits  in  addition 
to  interest,  might  be  in  conflict  with  Usury  Act. 

It  is  evident  that  most  of  the  conveniences  and  advantages  of  the 
Limited  Partnership  Act,  and  some  which  it  does  not  give,  might  be 
obtained  by  a  loan  of  money,  with  a  stipulation  for  compensation  for  its 
use,  by  a  share  of  the  profits,  if  thereby  a  partnership  is  not  created  as 
to  third  persons.  This  is  not  decisive  as  to  what  the  law  is.  But  it  is 
strongly  indicative  of  the  view  of  the  law  held  by  the  revisers  and  by 
the  legislature.  There  have  been  from  time  to  time  certain  exceptions 
established  to  this  rule  in  a  broad  statement  of  it.  But  the  decisions  by 
which  these  exceptions  have  been  set  up  still  recognize  the  rule,  that 
where  one  is  interested  in  profits,  as  such,  he  is  a  partner  as  to  third 
persons.  These  exceptions  deal  with  the  case  of  an  agent,  servant, 
factor,  broker,  or  employee,  who,  with  no  interest  in  the  capital  or  busi- 
ness, is  to  be  remunerated  for  his  services  by  a  compensation  from  the 
profits,  or  by  a  compensation  measured  by  the  profits;  or  with  seamen 
on  whaling  or  other  like  voyages,  whose  reimbursement  for  their  time 
and  labor  is  to  finally  depend   upon  the  result  of  the  whole  voyage. 


54  PARTNERSHIP    AS    TO    THIRD    PERSONS.  [CHAP.  II. 

There  are  other  exceptions,  like  tenants  of  land  or  a  ferry,  or  an 
inn.  who  are  to  share  with  the  owners  in  results,  as  a  means  Of  com- 
pensation for  their  labor  and  services.  The  decisions  which  establish 
these  exceptions  do  not  profess  to  abrogate  the  rule  —  only  to  limit  it. 
It  is  claimed  by  the  learned  counsel  for  the  appellant  that  the  rule  as 
announced  in  Grace  v.  Smith  and  Waugh  v.  Carver  has  been  exploded, 
and  another  rule  propounded  which  shields  the  appellant.  He  is  correct 
as  far  as  the  courts  in  England  are  concerned.  Cox  v.  Hickman,  8 
H.  L.  C.  268,  and  Bullen  v.  Sharp,  L.  R.,  1  C.  P.  86,  affirm  that,  while 
a  participation  in  the  profits  is  cogent  evidence  that  the  trade  in  which 
the  profits  were  made  was  carried  on,  in  part,  for  or  in  behalf  of  the 
person  claiming  the  right  to  participate  ;  yet  that  the  true  ground  of 
liability  is  that  it  has  been  carried  on  by  persons  acting  in  his  behalf. 
Those  cases  were  very  peculiar  in  their  circumstances.  After  the 
judgments  rendered  in  them  the  parliament  deemed  it  needful  to  enact 
that  the  advance  of  mone}^  by  way  of  loan,  to  a  person  in  trade,  for  a 
share  of  the  profits,  should  not  of  itself  make  the  lender  responsible  as 
a  partner.  28  and  29  Vic.  ch.  86,  as  cited  in  Parsons  on  Part.  92,  note 
t.  If  the  decisions  in  the  cases  cited  went  as  far  as  is  claimed,  it  would 
seem  that  the  act  was  supererogatory.  It  is  suggested,  however,  by 
Kelly,  C.  B.,  in  Holme  v.  Hammond,  L.  R. ,  7  Ex.  218,  that  the  effect 
of  the  statute  is,  that  the  sharing  in  the  profits  by  a  lender  shall  be  no 
evidence  at  all  of  a  partnership.  At  all  events  those  decisions  have 
been  accepted  in  England  as  settling  the  rule  as  above  stated.  See  case 
last  cited  and  cases  therein  referred  to. 

Without  discussing  those  decisions,  and  determining  just  how  far 
they  reach,  it  is  sufficient  to  say  that  they  are  not  controlling  here  ;  that 
the  rule  remains  in  this  State  —  as  it  has  long  been  —  and  that  we 
should  be  governed  by  it  until  here,  as  in  England,  the  legislature  shall 
see  fit  to  abrogate  it. 

The  references  upon  the  appellants'  points  do  not  show  that  the  courts 
of  this  State  have  }et  exploded  the  rule  I  have  stated.  I  have  con- 
sulted all  the  authorities  cited  (save  a  few  of  which  I  had  not  the 
books,  or  as  to  which  there  was  a  mis-citation),  and  I  do  not  find 
that  the  rule  is  questioned,  further  than  to  apply  to  the  facts  of  the 
particular  case  some  one  or  more  of  the  exceptions  to  the  rule  which  I 
have  stated  to  exist. 

I  am  of  the  opinion  that  the  judgment  appealed  from  should  be 
affirmed,  with  costs. 

All  concur,  except  Church,  C.  J.,  dissenting. 


§  2. J  VARIOUS    EXCEPTIONS    TO    THE    OLD    RULE.  55 

WEISS     ET    AL.    V.    WEISS    ET    AL. 

166  Pa.  St.  490:  31  At.  247.     1S95. 

Assumpsit  on  promissory  notes  against  E.  Weiss  and  Charles  W. 
Schmidt  trading  as  E.  Weiss  &  Co.  Their  partnership  liability  was 
grounded  on  the  following:  "  Agreement,  made  the  twenty-second  day 
of  November,  A.  D.  1887,  between  Ernest  Weiss,  dyestuffs  dealer  of 
the  city  of  Philadelphia,  and  Charles  W.  Schmidt,  liquor  dealer,  of  the 
same  place.  Whereas,  the  said  Charles  W.  Schmidt  has  advanced  and 
loaned  to  Ernest  Weiss  the  sum  of  $6,000,  for  which  he,  the  said  Charles 
AY.  Schmidt,  is  to  accept  a  mortgage  which  is  drawn  in  favor  of  Weiss 
Bros.,  Germany,  given  by  James  C.  Biddle  upon  the  Dark  Run  Mill, 
in  the  Twenty-third  Ward  of  the  city  of  Philadelphia,  which  is  to  be  put 
upon  record  as  soon  as  certain  papers  arrive  from  the  said  Weiss  Bros., 
and  to  secure  the  said  Charles  W.  Schmidt  until  such  times  that  the  said 
mortgage  is  recorded  and  assigned  to  him.  the  said  Ernest  Weiss  agrees 
to  give  a  judgment  note  for  the  aforesaid  loan,  which  note  is  not  to  be 
recorded  except  in  case  the  said  Ernest  Weiss  should  fail  in  business. 
Further,  the  said  Ernest  Weiss  agrees  to  give  to  the  said  Charles  W. 
Schmidt  fifteen  per  cent  of  the  net  profits  of  the  business  for  the  term 
of  one  year,  after  first  deducting  the  sum  of  $3,000,  being  the  yearly 
salary  of  the  said  Ernest  Weiss.  Also  the  said  Charles  W.  Schmidt 
agrees  to  accept  at  the  end  of  one  year  from  the  date  hereof  the  said 
$6,000  for  said  mortgage,  which  is  to  be  assigned  to  Ernest  Wreiss  upon 
payment  of  the  said  net  profits." 

Isaac  8.  Sharp,  of  Sharp  &  Alleman,  for  appellants. 

Samuel  Peltz,  for  appellee. 

Fell,  J.  The  agreement  between  the  defendants  made  them  part- 
ners at  common  law  in  this  State.  The  case  of  Waugh  v.  Carver,  2  H. 
Bl.  235,  decided  in  1793,  which  followed  Grace  v.  Smith,  2  Wm.  Bl. 
998,  decided  in  1775,  was  followed  and  adopted  to  its  full  extent  in 
Purviance  v.  McClintee,  6  Serg.  &  R.  259,  in  1820.  The  well-settled 
rule  of  Waugh  v.  Carver  was  overruled  in  England  in  1X60  by  the  case 
of  Cox  v.  Hickman,  8  H.  L.  C.  268,  but  there  has  been  no  departure 
from  it  in  this  State,  except  by  legislation  in  1870.  In  the  opinion  in 
Edwards  v.  Tracy,  62  Pa.  St.  374,  decided  in  1869,  Sharswood,  J., 
pointed  out  the  new  English  rule  of  Cox  v.  Hickman,  but  followed  the 
old  one  of  Waugh  v.  Carver,  saying:  "It  is  entirely  too  late  now  to 
question  either  the  rule  or  the  exception.  We  are  bound  to  stand 
super  antiquas  vias  by  our  own  decided  cases."  In  the  opinion  in 
Lord  v.  Proctor,  7  Phila.  630,  decided  at  nisi  prim  the  same  year,  lie 
said  that  the  rule  in  Waugh  v.  Carver  was  too  ancient  a  landmark  in 
our  law  to  be  now  disturbed,  and  that  it  has  accordingly  been  followed 
in  Edwards  v.  Tracy.  Since  the  Act  of  1870  there  has  been  no  change 
injudicial  decision.  The  question  whether  the  agreement  bit  ween  the 
defendants  made  them  partners  as  to  third  parties  did  not  arise  in  Hart 


56  PARTNERSHIP    AS    TO   THIRD    PERSONS.  [CHAP.  II. 

v.  Kelle}*,  83  Pa.  St.  286.  The  agreement  had  been  rescinded,  and  the 
claim  in  suit  was  for  goods  sold  before  it  went  into  effect,  or  after  it 
had  been  abandoned.  Caldwell  v.  Miller,  127  Pa.  St.  442,  reaffirms 
the  rule,  and  both  Walker  v.  Tupper,  152  Pa.  St.  1,  and  In  re  Gibb's 
Estate,  157  Pa.  St.  59,  came  within  the  well-recognized  exceptions, 
almost  as  ancient  as  the  rule  itself,  which  were  made  to  avoid  the  in- 
justice of  its  universal  enforcement. 

This  rule  has  been  so  long  established  as  a  part  of  our  jurisprudence 
that  it  is  needless  now  to  consider  whether  it  is  philosophical,  and  in 
harmony  with  the  principles  governing  the  partnership  relation.  The 
departure  from  it  in  this  State  —  and  it  was  doubtless  the  wiser  course 
—  has  been  by  legislation.  The  Act  of  April  6,  1870,  provides  that  a 
loan  of  money  tojm  individual  or  a  firm  upon  an  agreement  to  receive 
a  share  of  the  profits  of  the  business  as  compensation  for  thejujDujrthe 
money  and  in  lieu  of  interest  shall  not  make  the  party  loaning__the 
money  liable  as  a  partner,  except  as  to  the  money  loaned,  provided  that 
the  agreement  for  the  loan  shall  be  in  writing,  and  that  the  party  shall 
not  hold  himself  out  as  a  general  partner.  This  legislation  distinctly 
recognized  the  rule  as  it  had  existed  in  this  State  for  fifty  3'ears,  and  in 
England  from  1775  to  1860,  and  modified  it  to  conform  more  nearly  to 
the  modern  English  rule  of  Cox  v.  Hickman,  supra. 

The  affidavit  of  defence  contains  a  denial  of  the  partnership,  but  it 
admits  or  leaves  unnoticed  all  the  allegations  of  fact  in  the  statement. 
It  is  a  denial,  therefore,  of  a  conclusion  of  law  only,  and  raises  the 
single  question  whether,  under  the  facts  as  stated,  the  defendant 
Schmidt  is  liable  as  a  partner.  As  he  would  have  been  liable  before 
the  Act  of  1870,  it  remains  only  to  determine  whether  he  comes  within 
its  protection.  This  cannot  be,  unless  he  has  complied  with  its  pro- 
visions. The  exemption  from  liabilit}'  is  on  condition  that  the  agree- 
ment shall  be  in  writing,  and  that  the  share  of  the  profits  shall  be  in 
lieu  of  interest.  Only  a  part  of  the  agreement  in  this  case  was  in  writ- 
ing, the  stipulation  for  interest  on  the  loan  being  oral.  The  interest  to 
be  paid  was  6  per  cent,  and  the  defendant  was  to  receive  in  addition 
thereto  15  per  cent  of  the  profits.  The  15  per  cent  was  not  to  be  paid 
in  lieu  of  interest,  but  in  addition  to  it.  The  6  per  cent  was  not  to  be 
received  as  a  part  of  the  profits  in  lieu  of  interest,  but  was  paj-able  as 
interest  in  an}T  event,  whether  there  were  profits  or  not.  This  agree- 
ment is  not  in  compliance  with  the  requirements  of  the  statute,  either 
in  letter  or  spirit,  and  its  effect  is  to  impose  a  liability  as  a  partner. 

The  judgment  is  reversed,  and  the  record  is  remitted,  with  direction 
that  judgment  shall  be  entered  for  the  plaintiff,  unless  other  just  or 
equitable  cause  shall  be  shown. 


§  2.1  VARIOUS    EXCEPTIONS    TO    THE    OLD   RULE.  57 


HACKETT  v.   STANLEY. 
115  N.  Y.  625:  -2:2  N.  E.  745.     1SS9. 

Ruger,  C.  J.  The  determination  of  this  case  involves  the  construe-  " 
tion  of  an  agreement  between  James  Stanley  and  MbultonW.  Gorham, 
and  the  question  whether  such  agreement  constituted  the  defendant 
Stanley  a  partner  as  to  third  persons  with  Grorham.  If  it  did,  then 
the  judgment  must  be  sustained.  The  liability  of  the  alleged  partners 
is  predicated  upon  a  debt  for  services  rendered  and  materials  furnished 
by  the  plaintiffs,  upon  the  request  of  Gorham,  in  fitting  up  a  place  in 
New  York  to  carry  on  the  business  of  heating,  ventilating,  etc.  The 
part  of  the  agreement  which  it  is  claimed  creates  the  partnership  reads 
as  follows  :  ;t  That  for  and  in  consideration  of  the  loan  of  seven  hun- 
dred and  fifty  ($750)  dollars  from  the  said  party  of  the  second  part  to 
the  said  party  of  the  first  part,  for  use  in  the  business  of  heating,  venti- 
lating, etc.,  for  which  said  party  of  the  first  part  has  given  unto  said 
party  of  the  second  part  his  note  at  two  years,  with  interest,  bearing 
date  of  January  14,  1885,  payment  of  which  is  secured  by  an  assign- 
ment of  said  value  in  a  certain  S3, 000  policy  in  the  Massachusetts 
Mutual  Life  Insurance  Company,  and  also  by  a  certain  chattel  mort- 
gage, bearing  date  January  23,  1885,  and  in  further  consideration  of 
services  of  said  party  of  second  part  in  securing  sales  in  said  business, 
and  for  any  further  moneys  he  may,  at  his  own  option,  advance  for 
me  in  said  business,  the  said  party  of  the  first  part  agrees  to  divide 
equally  the  yearly  net  profits  of  said  business.  It  is  understood  and. 
agreed  that  said  loan  of  'S750  is  expressly  for  use  in  said  business, 
and  for  no  other  use  whatever."  It  was  further  provided  that  advances 
made  by  either  party  in  the  business  were  at  all  times  subject  to  be 
withdrawn,  at  the  option  of  the  party  making  them,  and  were  to  bear 
interest  while  used  in  the  business.  Gorham  was  to  be  allowed  81 ,000 
per  annum  for  his  services  in  managing  the  business,  and  quarterly 
statements  of  its  condition  were  to  be  made  by  him  to  Stanley. 

It  is  fairly  to  be  implied  from  the  contract  that  Gorham  was  to  be 
the  active  man  in  the  business,  and  it  was  to  be  carried  on  in  his  name  ; 
but  whether  he  was  to  furnish  any  capital,  and  if  so  how  much,  is 
not  disclosed.  For  aught  that  appears  the  money  furnished  by  Stanley 
was  all  that  was  supposed  to  be  necessary  to  start  and  carry  on  the 
business  until  returns  were  realized  from  its  prosecution. 

This  agreement  does  not,  in  express  terms,  purport  to  form  a 
pnvfnfirgh'pT- pcitherjs  the  intention  to^jlp  ^  dififilfiimPfl  i  °"^  till" 
q i '^ir^  js,  tiinrnfVirn  whMhpr,  jn  n  business  carried  on  under  |.he  con- 
rijHnng__rjxpv»lnf1  for  in  _the  contract,  the  parties'  ttlPrPfrt  ll1"'"" 
partners,asJ&jtlurU  p^usonj. It  clearly  provides  for  something  more 
than  a  loan  of  money,  as  it  is  fairly  to  be  implied  from  it  that  Stanley 
would  render  active  services  as  a  principal  in  the  prosecution  of  the 
business^andjimiish  further  financial  aid  therefor,  if  it  became  neces- 


58  PARTNERSHIP   AS    TO    THIRD    PERSONS.  [CHAP.  II. 

sary,  and  he  deemed  it  advisable  to  do  so.  The  loan  was  not  one 
made  to  Gorbam  generally,  but  was  for  the  benefit  of  the  particular 
'business,  in  whose  prosecution  Stanley  had  an  equal  interest,  and  any 
diversion  of  the  funds  from  such  use  was  strictly  prohibited.  Each 
party  was  authorized  to  charge  the  business  with  interest  on  the  funds 
advanced  by  him  for  its  prosecution,  and  they  would  each  be  entitled 
to  pro  rata  reimbursement  of  such  funds  from  the  assets  of  the  busi- 
ness, in  case  of  a  deficiency  in  assets  to  pay  the  advances  in  full.  In 
that  respect,  it  was  evidently  contemplated  that  each  party  should  bear 
an}'  loss  incurred,  in  proportion  to  the  advances  made  by  them 
respectively.  For  all  this,  Stanley  was  to  receive  one-half  the  net 
profits  of  the  business.  His  right  to  profits  would  not  cease  upon 
the  repayment  of  the  original  loan,  or  depend  upon  the  value  of  the 
services  rendered  or  moneys  advanced,  or  either  of  them  alone,  but 
was  to  continue  as  long  as  the  business  was  carried  on.  The  letter 
of  the  contract  is  that  in  consideration  of  the  loan  of  $750,  payable 
in  two  3Tears,  and  the  further  consideration  of  services  in  securing 
sales  in  said  business,  and  further  moneys  furnished,  the  net  profits 
are  to  be  divided.  The  services  promised,  and  the  moneys  advanced 
and  to  be  advanced,  each  and  all  constituted  the  consideration  for  the 
division  of  the  profits.  We  think  such  an  agreement,  within  all 
authorities,  constitutes  a  partnership  as  to  third  parties.  By  it,  Stanley 
had  an  interest  in  the  general  business  of  the  concern  ;  a  right  to 
require  a  quarterly  account  of  its  transactions ;  authority  to  make 
contracts  in  its  behalf;  and  an  irrevocable  right  to  demand  one-half 
of  the  profits  of  the  business.  That  the  original  loan  of  $750  was 
secured  to  be  repaid  by  Gorham  to  Stanle}'  does  not  preclude  the 
conclusion  that  they  were  partners  ;  for  it  is  entirety  competent  for 
one  partner  to  guarantee  another  against  loss,  in  whole  or  in  part,  in 
a  partnership  business,  if  the  parties  so  agree.  The  application  of  the 
rule  that  "participation  in  profits"  renders  their  recipient  a  partner 
in  the  business  from  which  profits  are  derived,  as  to  third  persons, 
has  been  somewhat  restricted  by  modern  decisions  ;  but  we  think  that 
the  division  of  profits  must  still  be  considered  the  most  important 
element  in  all  contracts  by  which  the  true  relation  of  parties  to  a 
business  is  to  be  determined.  We  think  this  rule  is  founded  in  strict 
justice  and  sound  policy.  There  can  be  no  injustice  in  imposing  upon 
those  who  contract  to  receive  the  fruits  of  an  adventure  a  liabilit\T  for 
credits  contracted  in  its  aid,  and  which  are  essential  to  its  successful 
conduct  and  prosecution.  This  liability  does  not,  and  ought  not  to, 
depend  upon  the  intention  of  the  parties,  in  making  their  contract, 
to  shield  themselves  from  liabilit}',  but  upon  the  ground  that  it  is 
against  public  policy  to  permit  persons  to  prosecute  an  enterprise 
which,  however  successful  it  may  for  a  time  appear  to  be,  is  sure  in 
the  end  to  result  in  the  advantage  of  its  secret  promoters  alone,  and 
the  ruin  and  disaster  of  its  creditors  and  others  connected  with  it. 
Atherton  v.   Tilton,  44  N.   H.  452;   Chase  v.  Barrett.  4  Paige,   159. 


§  2.]  VARIOUS   EXCEPTIONS   TO   THE   OLD   RULE.  59 

Expected  profits  being  the  motive  which  induces  the  prosecution  of 
all  commercial  and  business  enterprises,  their  accumulation  and  reten- 
tion in  business  are  essential  to  their  success ;  and  if  persons  are 
permitted,  by  secret  agreement,  to  appropriate  them  to  their  own  use, 
and  throw  the  liabilities  incurred  in  producing  them  upon  those  who 
receive  only  a  portion  of  the  benefits,  not  only  is  a  door  opened  to 
the  perpetration  of  frauds,  but  such  frauds  are  rendered  inevitable. 
Exceptions  to  the  rule  are  however  found  in  cases  where  a  share  in 
profits  is  contracted  to  be  paid  as  a  measure  of  compensation,  to 
employees  for  services  rendered  in  the  business,  or  for  the  use  of 
moneys  loaned  in  aid  of  the  enterprise ;  but  where  the  agreement 
extends  beyond  this,  and  ■Providoo  for  a  rjroimetam  interest  in  the 
profits  as  a  compensation  for  moneys  advanced  and  time  and  ><t\ 
testowed  as  a  principal  in  its  prosecution,  we  think  that  the  .rule  still 
requires  such  party  to  be  held  as  a  partner. 

The  rule  laid  down  in  Kent's  Commentaries  (vol.  3,  p.  25,  note  &), 
that  "  the  test  of  partnership  is  a  communit}-  of  profit ;  a  specific  inter- 
est in  the  profits,  as  profits,  in  contradistinction  to  a  stipulated  portion  of 
the  profits  as  a  compensation  for  services  "  —  was  approved  by  this  court 
in  Leggett  v.  Hyde,  58  N.  Y.  272,  in  which  case  Judge  Folger,  .  .  . 
after  referring  to  the  English  cases  claimed  to  have  qualified,  if  not  over- 
ruled, the  cases  of  Grace  v.  Smith,  2  W.  Bl.  998,  and  Waugh  v.  Carver, 
2  H.  Bl.  235,  which  were  the  foundation  of  the  doctrine  that  a  par- 
ticipation in  profits  renders  those  receiving  them  partners,  says  that 
"without  discussing  those  decisions,  and  determining  just  how  far 
the}*  reach,  it  is  sufficient  to  say  that  they  are  not  controlling  here ; 
that  the  rule  remains  in  this  State  as  it  has  long  been ;  and  that  we 
should  be  governed  by  it  until  here,  as  in  England,  the  legislature 
shall  see  fit  to  abrogate  it."  The  same  remark  may  also  be  applied 
to  the  cases  of  Harvey  v.  Childs,  28  Ohio  St.  319  ;  Hart  v.  Kelley,  83 
Pa.  St.  286;  Beecher  v.  Bush,  45  Mich.  188;  Eastman  v.  Clark,  53 
N.  H.  276;  Emmons  v.  Bank,  97  Mass.  230 — decided  in  the  courts 
of  our  sister  States,  in  which  the  distinction  between  contracts  of 
partnership  inter  sese  and  those  making  the  parties  partners  as  to 
third  persons,  although  not  so  as  between  themselves,  is  sought  to  be 
practically  abolished.  The  doctrine  that  persons  may  be  partners  as 
to  third  persons,  although  not  so  as  between  themselves,  and  although 
the  contract  of  partnership  contains  express  provisions  repudiating 
such  a  relation,  has  been  too  firmly  established  in  this  State  by  repeated 
decisions  to  be  now  disregarded  by  its  courts.  See  cases  cited  in 
Leggett  v.  Hyde.  It  is  claimed  that  this  doctrine  has  been  practically 
overruled  in  this  State  by  the  decisions  in  this  court  of  Richardson  y. 
Hughitt,  76  N.  Y.  55  ;  Burnett  v.  Snyder,  Id.  344  ;  Eager  v.  Crawford, 
Id.  97;  Curry  v.  Fowler,  87  Id.  33  ;  and  Cassidy  y.  Hall,  97  Id.  159. 
We  do  not  think  these  cases  had  the  effect  claimed.  They  were  all  cases 
distinguished  by  peculiar  circumstances,  taking  them  out  of  the  opera- 
tion of  the  general  rule.     It  cannot  be  disputed  but  that  a  loan  may 


60  PARTNERSHIP    AS    TO   THIRD   PERSONS.  [CHAP.  IL 

be  made  to  a  partnership  firm  on  conditions  by  which  the  lenders  may  se. 
cure  a  limited  or  qualified  interest  in  certain  profits  of  the  firm,  without 
making  them  partners  in  its  general  business ;  but  that  is  not  this  case. 
In  Richardson  v.  Hughitt,  snpra,  Bench  Bros.  &  Co.  were  a  manufac- 
turing firm,  carrying  on  the  business  of  making  wagons,  and  Hughitt 
contracted  to  advance  to  them  $50  on  each  wagon  manufactured  by 
them  and  delivered  to  him,  to  the  extent  of  two  hundred  wagons,  under 
an  agreement  that  upon  the  sale  of  the  wagons  he  was  to  receive  back 
the  moneys  advanced,  with  interest,  and  one- fourth  of  the  net  profits 
on  such  wagons.     It  was  held  that  this  was  a  mere  loan  of  money, 
providing   for   an   interest   in   the  profits  as  a  compensation   for  the 
money  loaned.     The  lender  secured  no  interest  in  the  general  busi- 
ness of  the   firm,   or  interest   in   the   profits  made  therein,    and  did 
not  become  liable  for  its  debts.     It  is  quite  clear  that  if  such  a  con- 
tract had  been   made  after  the  wagons  were  finished,  it  would  have 
created  simply  a  pledge  of  property  for  the  payment  of  a  debt,  com- 
petent for  the  parties  to  make,  and  which  would  not  have  made  the 
pledgee  a  partner.     The  fact  that  the  contract  was  executor}*  would 
not  alter  the  real  nature  of  the  transaction  or  affect  the  relations  of  the 
parties  to  third  persons.     The  case  of  Eager  v.  Crawford,  supra,  was 
a  pure  loan  of  money,  with  an  agreement  that  the  borrower  should  pay 
to  the  lender,  on  the  first  day  of  each  month,  one-half  of  the  gross 
receipts  of  the  business  carried  on  by  him,  until  the  whole  sum,  with 
interest,  was  repaid.     The  dispute  in  the  case  was  upon  the  question 
whether  the  stipulation  for  one-half  the  gross  receipts  was  intended  to 
refer  to  profits.     The  question  submitted  to  the  jury,  the  evidence  being 
conflicting,  was  whether  it  was  "the  real  understanding  between  the 
parties  that  Crawford  should  participate  in  the  profits  as  such.     If  it 
was,  it  would  constitute  a  partnership  ; "  otherwise,  not.     This  court 
approved  the  charge.    In  Burnett  v.  Snyder,  supra,  two  of  the  members 
of  an  existing  firm,  composed  of  five  persons,  agreed  with  Snyder,  for 
a  good  consideration,  that  if  he  would  become  liable  to  them  for  one- 
third  of  the  losses  sustained  by  them  in  the  business  of  their  firm  they 
would  pay  to  him  one-third  of  the  profits  received  by  them  in  such 
business.     For  obvious  reasons  it  was   held  that  Snyder,  under   this 
agreement,  took  no  interest  in  the  general  business  of  the  firm,  and  did 
not  become  a  member  thereof.     In  Curry  v.  Fowler,  supra,  W.  G.  and 
J.  E.  McCormick  were  an  existing  firm,  owning  certain  Vacant  real 
estate  in  New  York,  which  they  desired  to  improve.     To  enable  them 
to  do  so,  Fowler  loaned  $50,000  to  them  ;  taking  as  security  therefor  a 
mortgage  upon  the  land,  with  an  agreement  that  he  should  be  repaid 
his  loan  and  interest,  with  one-half  of  the  profits  of  the  adventure, 
which  the  McCormicks  guaranteed  should  amount  to  $12,500.     This 
case  was  decided  upon  the  authority  of  Richardson  v.  Hughitt,  and  was 
said  to  resemble  it  in  all  essential  particulars.     In  Cassidy  v.  Hall, 
supra,  it  was  held  that  the  defendants  were  mere  lenders  of  money  to 
an  existing  corporation.     The  opinion  states  that  "under  the  agree* 


§  2.]        VAEIOUS  EXCEPTIONS  TO  THE  OLD  RULE.  61 

ment  the  advances  were  to  be  made  only  upon  such  orders  as  the 
defendants  approved,  and  the  most  that  can  be  claimed  from  it  is  that 
the  defendants  were  the  financial  agents  of  the  company,  to  make 
advances  and  discount  their  paper,  for  the  purpose  of  relieving  the 
company  from  the  financial  embarrassment  under  which  it  was  evidently 
laboring ;  for  which  the}-,  the  defendants,  were  to  receive  a  proportion 
of  the  face  of  the  orders  upon  which  the  advances  were  made  as  a  com- 
pensation for  the  risks  they  incurred,  and  for  the  use  of  the  money 
advanced  by  them.  They  were  not  generally  interested  in  the  affairs 
of  the  company,  but  only  for  a  special  and  specific  purpose  ;  and  in  no 
sense  were  they  paKiieTsT^It  caimprreasojuialilvlui  r\ alined  that  cTflie'r 
of  these  cases  is  an  authority  for  the~uiversal  of  this  judgment.  What- 
ever might  have  been  their  bearing  if  they  related  to  the  loan.  of. money 
alone,  wc  will  not  say  ;  but,  when  connected  with  the  circumstance 
that  the  defendant  was  expected  to  render  future  services  as  a  princi- 
pal, and  furnish  further  financial  aid,  with  a  certain  supervision  over 
theconduct  of  the  business,_we  think  this  case  is  clearly  distinguishable 
from  those  cited. 

"~TrT  the  view  'taken  of  this  case,  it  is  quite  immaterial  whether  the 
plaintiff  extended  the  credit  to  Gorham  alone  or  not,  as  the  defendant 
was  held  liable  upon  the  ground  that,  as  to  third  persons,  he  was  a 
partner.:  and  it  did  not  affect  _that  liability,  whether  the  plaintiff  knew 

the  fact_orj3fl^- 

The  exception  to  the  ruling  of  the  court  sustaining  the  objection  to 
the  question  put  to  plaintiff  on  cross-examination,  as  to  whom  the 
credit  was  furnished,  was  not  well  taken,  as  the  fact  sought  to  be 
proved  was  immaterial.  The  judgment  should  therefore  be  affirmed. 
All  concur. 


STRATTON   v.   O'CONNOR  et  al. 

31  S.  W.  15S:  12  Tex.  App.  — .     1896. 

Garrett,  C.  J.  The  appellees  entered  into  a  contract  with  one 
James  A.  King,  by  which  they  furnished  him  with  pasturage  for  720 
head  of  cattle  for  15  months,  ending  September  10,  1890,  at  the  rate 
of  12|  cents  a  month  for  each  head  of  cattle.  This  suit  was  brought 
against  the  said  King  and  the  appellant,  Stratton,  as  partners,  to  re- 
cover the  amount  due  for  said  pasturage.  Appellant  denied  under 
oath  that  he  was  a  partner  of  King.  Appellees  did  not  suppose  when 
they  entered  into  the  contract,  or  during  the  time  the  pasturage  for  the 
cattle  was  being  furnished,  that  Stratton  was  a  partner  of  King;  and 
the  question  in  the  court  below  was,  were  Stratton  and  King  in  fact 
partners?  The  trial  judge  found  that  they  were.  The  only  question 
for  this  court  to  determine  is  whether  or  not  there  was  sullieient  evi- 
dence of  partnership  to  support  the  judgment. 


62  PARTNERSHIP   AS   TO    THIRD    PERSONS.  [CHAP.  II. 

The  cattle  for  which  the  pasturage  was  furnished  were  }*oung 
steers,  and  bought  with  the  money  of  Stratton,  and  delivered  by  him 
to  King,  at  a  fixed  valuation  per  head,  upon  an  agreement  between 
them  that  the  latter  should  furnish  pasturage  and  care  for  and  keep 
them  for  four  years  at  his  own  cost,  when  they  should  be  sold,  and  the 
proceeds  applied  to  the  payment  to  Stratton  of  the  agreed  cost  of  the 
cattle  and  one-half  of  the  expense  incurred  by  him  in  delivering  them 
from  Cuero  at  the  ranch,  the  balance  to  be  divided  between  them 
equally  as  profits  ;  loss,  if  any,  was  to  be  shared  b}T  King.  If  both 
parties  agreed  to  it,  the  cattle  might  be  sold  before  the  expiration  of 
four  years.  A  part  of  the  cattle  had  been  bought  by  Stratton  before 
the  agreement  between  him  and  King  was  entered  into,  but  the  greater 
portion  was  bought  afterwards.  They  were  the  property  of  Stratton, 
and  the  only  interest  that  King  had  in  them  was  his  right  to  one-half 
of  the  profits  in  consideration  of  his  pasturing  and  keeping  them  at  his 
own  expense,  with  a  liability  to  share  the  losses.  Thomas  O'Connor 
testified  that  Stratton  told  him  that  he  was  a  partner  of  King.  Other 
witnesses  testified  to  statements  by  Stratton  that  went  to  show  that  he 
believed  himself  to  be  a  partner  of  King.  It  is  unnecessary  to  state 
the  evidence  in  detail.  We  conclude  that  it  is  sufficient  to  support  the 
judgment  of  the  court  below. 

The  judgment  will  be  affirmed. 


§  3.    Test  of  Intention. 

POLK  et  al.  v.  BUCHANAN. 

5  Sneed  (Tenn.),  721.     1857. 

McKinney,  J.  The  bill  seeks  to  charge  the  defendant,  Buchanan, 
as  a  partner  with  J.  L.  James  &  Son,  for  the  hire  of  slaves  for  the 
year  1854,  amounting  to  near  the  sum  of  $2,000  ;  not  upon  the  ground 
that,  in  point  of  fact,  a  partnership  existed,  as  between  the  parties 
themselves,  but  that  as  to  third  persons,  the  defendant  is  to  be  held 
liable  as  a  partner,  b}r  construction  of  law,  in  opposition  to  the  actual 
intention  and  agreement  of  the  parties. 

It  appears  that  J.  L.  James  &  Son  were  iron-masters  and  owners 
of  the  Phoenix  Furnace,  situate  in  Montgomery  County.  In  order  to 
raise  money  to  enable  them  to  carry  on  their  business,  they  had  pro- 
cured the  defendant,  Buchanan,  who  was  a  commission  merchant,  resi- 
dent in  Cincinnati.  Ohio,  to  accept  drafts,  for  their  accommodation,  to  the 
amount  of  $8,000,  prior  to  the  25th  day  of  June,  1853.  And  as  indem- 
nity to  him,  for  his  liability,  they,  on  that  da}-,  executed  to  him  a  con- 
veyance for  a  moiet}T  of  said  furnace,  and  lands  appurtenant  thereto, 
together  with  the  fixtures,  stock,  etc.  Shortly  thereafter,  to  wit :  On 
the  22d  day  of  July,  1853,  the  parties  entered  into  an  agreement  in 


§  3.]  TEST   OF  INTENTION.  63 

writing,  the  stipulations  and  provisions  of  which  are  stated  somewhat 
inartificially,  but  their  true  import  is  manifest.  \After  reciting  the  above 
mentioned  conveyance,  and  the  real  consideration  thereof,  namely, 
Buchanan's  acceptances  for  James  &  Son,  to  the  amount  of  §8,000,  the 
instrument  proceeds  as  follows:  "And  it  is  understood,  that  the  said 
Robert  Buchanan  shall  receive,  after  the  first  day  of  January,  1854,  one- 
fourth  of  the  net  profits  of  said furnace,  in  consideration  of  his  said  ad- 
vances of  eight  thousand  dollars  ;  and  his  having  agreed  to  furnish  the 
necessary  facilities,  through  his  acceptances,  to  carry  on  said  business,  in 
such  sums  as  may  be  necessary  for  the  same."  The  instrument  then, 
in  substance,  provides  that  all  metal  made  at  said  furnace,  after  the 
1st  of  January,  1854,  shall  be  placed  under  the  entire  control  of  Bu- 
chanan ;  and  that  James  &  Son  shall  furnish  him,  monthly,  with  state- 
ments of  the  products  and  expenses  of  said  furnace  ;  that  they  shall 
take  an  account  of  stock  on  the  1st  of  January,  1854  ;  and  that  any 
debts  that  they  may  have  to  provide  for  after  that  date,  shall  be  de- 
ducted from  their  share  of  the  net  profits  of  the  concern  ;  and  that 
Buchanan  is  not  to  be  liable  for  any  debts  of  James  &  Son,  contracted 
either  before  or  after  the  1st  of  January,  1854.  James  &  Son  are 
bound  to  renew  their  bills  and  drafts  on  Buchanan,  as  they  fall  due, 
and  to  pay  all  interest,  exchange,  and  charges  on  the  same.  It  is 
further  stipulated  that  said  agreement  should  continue  in  force  for  two 
years,  at  the  expiration  of  which  time  Buchanan  bound  himself  to 
reconvey  to  James  &  Son  the  moiety  of  the  furnace,  etc.,  subject  to 
his  right  to  be  indemnified  out  of  the  same,  for  his  advances,  and 
"share  of  profits."  And  in  the  conclusion  of  the  instrument  is  the 
followiug  statement:  "  The  commissions  of  one-fourth  the  profits  of 
the  furnace,  being  paid  to  the  said  H.  Buchanan,  in  consideration 
of  his  acceptances  of  said  drafts,  now  out,  and  to  be  given  hereafter." 

It  is  not  assumed  by  the  complainants'  counsel  that  the  parties,  by 
this  agreement,  intended  to  make  themselves  partners.  On  the  con- 
trary, it  is  understood  to  be  conceded  in  argument,  and  the  question 
admits  of  no  serious  controvers}',  that,  in  fact,  there  was  no  intention 
to  create  a  partnership,  either  as  between  the  parties  themselves,  or  as 
to  third  persons.  But  it  is  insisted  that,  by  construction  of  law,  the 
provision,  securing  to  Buchanan  "one-fourth  of  the  net  profits,"  con- 
stituted him  a  partner  as  to  creditors. 

The  authorities  are  at  variance  upon  this  subject;  and,  as  we  have 
no  decision  of  our  own  upon  the  point,  we  are  at  liberty  to  adopt  such 
rule  as  may  seem  to  us  most  reasonable  and  just  in  itself. 

The  rule  of  common  law  relied  on  by  the  complainants'  counsel  in 
support  of  the  bill  is,  that  a  specific  interest  in  profits,  as  profits  ,'  or, 
in  other  words,  a  participation  in  the  net  profits  of  a  business  will,  by 
construction  of  law,  create  a  partnership  between  the  parties,  in  favor 
of  third  persons. 

Whether,  on  a  careful  review  of  the  English  authorities,  the  conclu- 
sion is  warranted,  that  any  such  absolute  universal  rule  exists,  is  an 


64  PARTNERSHIP   AS    TO   THIRD    PERSONS.  [CHAP.  II. 

inquiry  we  need  not  stop  to  make.  If  it  were  admitted  to  be  so,  that 
rule  has  been  essentially  modified  by  the  decisions  of  several  of  the 
American  courts,  and  upon  principles  of  reason  and  natural  justice 
that  cannot  fail  to  command  general  assent  and  approval.  Mr.  Stoiy, 
in  his  Treatise  on  Partnership,  while  admitting  the  doctrine  of  the 
common  law,  submits,  whether,  as  an  original  question,  it  would  not 
have  been  more  conformable  to  true  principles,  as  well  as  to  public 
policy,  to  have  held  that  no  partnership  should  have  been  deemed  to 
exist  at  all,  even  as  to  third  persons,  unless  such  were  the  intention  of 
the  parties,  or  unless  they  had  so  held  themselves  out  to  the  public. 
§36. 

The  American  authorities  referred  to,  do  not  admit  the  doctr'ne  that 
the  mere  fact  of  participation  in  the  profits  of  a  business,  whether 
gross  or  net  profits,  is  to  be  taken  as  conclusive  of  a  partnership,  even 
in  favor  of  creditors,  irrespective  of  the  truth  of  the  case.  They 
seem  to  proceed  upon  the  more  just  and  sensible  view,  that  participa- 
tion in  the  profits  affords  merely  a  presumption  which  is  to  prevail 
only  in  the  absence  of  proof  to  the  contrary  ;  and  that  it  is  a  question 
of  fact,  upon  inquiry  and  proof,  whether  the  circumstances  under 
which  the  participation  in  the  profits  exists,  clearly  demonstrate  that 
the  profits  are  taken,  not  in  the  character  of  partner,  but  in  a  totally 
different  character,  and  merely  as  compensation  for  services  or  benefits 
rendered  by  the  person  by  whom  they  are  received.  In  the  latter  case, 
while  it  is  true  that,  in  a  certain  sense,  the  party  has  a  community  of 
interest  in  the  profits,  yet  it  is  no  less  true  that  he  does  not  participate 
therein  as  an  owner  or  partner.  He  has  no  interest  in  the  capital  stock. 
He  is  not  invested  with  the  rights,  powers,  or  duties  of  partner,  nor  is 
he  liable  for  losses.  His  interest,  whether  it  be  a  certain  proportion  of 
the  profits,  or  a  fixed  sum  to  be  paid  out  of  the  profits,  is,  at  most,  only 
as  tenant  in  common,  possessed  of  an  undivided  portion  of  the  profits. 
The  doctrine  thus  qualified  and  understood,  makes  the  rule  consistent 
with  the  great  and  leading  principle  of  construction,  that  all  agreements 
are  to  be  expounded,  and  to  have  effect  given  to  them,  according  to  the 
manifest  intention  of  the  parties  as  apparent  from  the  whole  instrument 
or  agreement,  if  not  incompatible  with  established  principles  of  law  or 
policy.  What  can  be  more  incongruous,  in  a  case  like  the  present, 
than  to  seize  upon,  and  insulate  the  words  "  net  profits"  from  the  con- 
text, and  by  taking  them  in  the  legal  sense  of  the  phrase,  give  to  the 
whole  agreement  a  meaning  and  effect  diametrically  opposed  to  the  ex- 
pressed intention  and  agreement  of  the  parties ;  and  thus  create,  for 
the  purpose  of  a  particular  determination,  a  fictitious  relation  between 
the  parties,  which,  upon  the  face  of  the  whole  instrument,  is  demon- 
strated not  to  have  existed?  This  is  contrary  to  the  established  prin- 
ciples and  analogies  of  the  law.  In  deeds,  wills,  and  every  description 
of  written  instruments  or  agreements,  technical  words  and  phrases  of 
defined  legal  import  are,  in  general,  subject  to  be  controlled  by  the 
clearly  expressed  intention  of  the  parties  in  the  context. 


i  clearly- 


s 


s 


]  TEST    OF    INTENTION.  65 


The  supposed  distinction  between  gross  and  net  profits,  to  which  so 
much  importance  seems  to  be  given  in  some  of  the  cases,  is  scarcely 
worth}-  of  grave  consideration,  in  the  determination  of  the  question, 
whether  the  profits  were  to  be  received  by  the  party,  in  the  character 
of  partner,  or  in  an  entirely  different  character.  The  words  "net 
profits  "  may  be  admitted  to  imply,  in  general,  a  participation  in  losses, 
as  well  as  profits  :  and.  of  course,  the  share  of  net  profits  would  be 
diminished  in  proportion  to  the  amount  of  the  losses.  But  still,  this 
only  goes  to  the  amount  of  compensation  to  be  received  b}T  the  agent, 
factor,  etc.  ;  it  cannot  establish  the  liability  of  such  agent  as  a  partner, 
where  it  is  shown  that  no  partnership  exists. 

Nor  is  the  question  whether  the  stipulation  for  a  share  of  the  profits 
will  entitle  the  party  to  an  account,  of  any  more  practical  importance. 
It  mav  be,  in  some  cases,  whether  the  provision  be  for  a  certain  pro- 
portion of  the  profits,  or  a  fixed  sum  to  be  paid  out  of  the  profits,  that 
an  account  would  be  necessary  ;  but  this,  in  reason,  can  have  no  in- 
fluence upon  the  determination  of  the  question  of  fact,  which  neces- 
sarily lies  at  the  foundation,  whether  or  not  a  partnership  was  intended 
to  be  created  by  the  agreement  of  the  parties. 

We  lay  it  down,  therefore,  that  in  all  such  cases  it  is  a  question  of 
fact,  open  to  proof  in  the  ordinary  modes,  whether  or  not  a  partner- 
ship exists  by  the  intention  and  agreement  of  the  parties.  And  if  the 
fact  be  clearly  shown  not  to  be  so,  a  mere  stipulation  that  a  party 
shall  receive  a  specific  proportion  of  the  net  or  gross  profits  of  a  busi- 
ness, or  an  ascertained  amount,  payable  out  of  the  profits,  as  a  com- 
pensation for  services,  benefits,  or  advantages  rendered  to  the  business, 
will  not  make  such  party  liable  as  a  partner,  to  third  persons  ;  provided 
he  has  not  permitted  the  use  of  his  name  ;  or  suffered  himself  to  be 
held  out  as  a  partner  to  the  public.  We  refer  to  6  Met.  82  ;  10  Id. 
303;  22  Pick.  151;  12  Conn.  69;  20  Wend.  70;  4  Paige,  148,  160; 
Story  on  Part.  §§  36,  38. 
The  decree  will  be  reversed,  and  the  bill  be  dismissed. 


COX  and  WHEATCROFT  v.  HICKMAN. 

8  House  of  Lords  Cases,  268.     1860. 

B.  Smith  and  J.  T.  Smith  carried  on  business  in  the  name  of  B.  Smith 
&  Son.  Becoming  embarrassed  in  1849,  a  meeting  of  creditors  was 
held,  and  a  deed  of  arrangement  executed  by  the  Smiths,  as  parties  of 
the  first  part,  by  certain  of  the  creditors  as  trustees,  of  the  second  part, 
and  by  the  general  scheduled  creditors,  including  the  trustees,  of  the 
third  part.  The  deed  assigned  the  Smiths'  property  to  trustees  who 
were  empowered  to  carry  on  the  business  under  the  name  of  the  Stanton 
Iron  Company;  to  execute  all  contracts  and  instruments  necessary  to 

5 


6Q  PARTNERSHIP   AS   TO    THIRD    PERSONS.  [CHAP.  II. 

carry  it  on  ;  to  divide  the  net  income  among  the  creditors  in  ratable  pro- 
portions, which  net  income  was  alwa}-s  to  be  deemed  the  property  of  the 
Smiths ;  with  power  to  the  majority  of  the  creditors,  assembled  at  a 
meeting,  to  make  rules  for  conducting  the  business  or  to  put  an  end  to 
it ;  and,  after  the  debts  had  been  discharged,  the  property  was  to  be  re- 
transferred  by  the  trustees  to  the  Smiths.  Cox  and  Wheatcroft  were 
named  among  the  trustees,  but  Cox  never  acted,  and  Wheatcroft 
resigned  before  the  debt  in  suit  was  contracted.  This  action  was 
brought  on  bills  of  exchange  drawn  by  the  plaintiff  on  the  Stanton  Iron 
Coinpairy.  for  the  value  of  goods  supplied  by  Hickman  to  the  company, 
and  accepted  bjr  the  trustees,  "  Per  proc.  The  Stanton  Iron  Company." 

The  cause  was  tried  in  1856,  before  the  late  Lord  Chief  Justice 
Jervis,  when  a  verdict  was  found  for  the  defendants  ;  but,  on  motion 
on  leave  reserved,  the  verdict  was  entered  for  the  plaintiff.  18  C.  B.  G17. 
The  case  was  taken  to  the  Exchequer  Chamber,  when  three  judges, 
Justices  Coleridge,  Erle,  and  Crompton,  were  for  affirming  the  judg- 
ment of  the  Common  Pleas,  and  three  other  judges,  Barons  Martin, 
Bramwell,  and  Watson,  were  for  reversing  it.  3  C.  B.  n.  s.  523. 
The  judgment,  therefore,  stood,  and  was  afterwards  brought  up  to  this 
House.  The  judges  were  summoned,  and  Lord  Chief  Baron  Pollock, 
Mr.  Justice  Wightman,  Mr.  Justice  Williams,  Mr.  Justice  Cromp- 
ton, Mr.  Baron  Channell,  and  Mr.  Justice  Blackburn  attended. 

The  Attorney-  General,  Sir  H.  Betliell  (Mr.  Milward  was  with  him), 
for  Wheatcroft. 

Mr.   Welsby  (Mr.  Boden  with  him),  for  Cox. 

Mr.  Holt  (Mr.  Field  with  him),  for  Hickman. 

Lord  Cranworth.  In  this  case  the  judges  in  the  Court  of  Exchequer 
Chamber  were  equally  divided,  and  unfortunately  the  same  difference 
of  opinion  has  existed  among  the  learned  judges  who  attended  this 
House  during  the  argument  at  your  Lordships'  bar.  Except,  therefore, 
from  an  examination  of  the  grounds  on  which  their  opinions  are  founded, 
we  can  derive  no  benefit  in  this  case  from  their  assistance.  We  cannot 
sa}'  that  in  the  opinions  delivered  in  this  House  there  is  more  authority 
in  favor  of  one  view  of  the  case  than  of  the  other.  We  must  not,  how- 
ever, infer  that  }Tour  Lordships  have  not  derived  material  aid  from  the 
opinions  expressed  by  the  judges.  These  opinions  have  stated  the 
arguments,  on  the  one  side  and  the  other,  with  great  clearness  and 
force,  and  what  we  have  to  do  now  is  to  decide  between  them. 

In  the  first  place,  let  me  sa}T  that  I  concur  with  those  of  the  learned 
judges  who  are  of  opinion  that  no  solid  distinction  exists  between  the 
liability  of  either  defendant,  in  an  action  on  the  bills,  and  in  an  action 
for  goods  sold  and  delivered.  If  he  would  have  been  liable  in  an  action 
for  goods  sold  and  delivered,  it  must  be  because  those  who  were  in  fact 
carrying  on  the  business  of  the  Stanton  Iron  Company  were  carrying 
it  on  as  his  partners  or  agents  ;  and,  as  the  bills  were  accepted,  accord- 
ing to  the  usual  course  of  business,  for  ore  supplied  by  the  plaintiff,  I 
cannot  doubt  that  if  the  trade  was  carried  on  by  those  who  managed  it 


§  3.]  TEST    OF    INTENTION.  67 

as  partners  or  agents  of  the  defendant,  he  must  be  just  as  liable  on  the 
bills  as  he  would  have  been  in  an  action  for  the  price  of  the  goods  sup- 
plied. His  partners  or  agents  would  have  the  same  authority  to  accept 
bills  in  the  ordinary  course  of  trade,  as  to  purchase  goods  on  credit. 

The  liability  of  one  partner  for  the  acts  of  his  co-partner  is,  in  truth, 
the  liability  of  a  principal  for  the  acts  of  his  agent.  Where  two  or 
more  persons  are  engaged  as  partners  in  an  ordinary  trade,  each  of 
them  has  an  implied  authority  from  the  others  to  bind  all  by  contracts 
entered  into  according  to  the  usual  course  of  business  in  that  trade. 
Eveiy  partner  in  trade  is,  for  the  ordinary  purposes  of  the  trade,  the 
agent  of  his  co-partners,  and  all  are  therefore  liable  for  the  ordinary 
trade  contracts  of  the  others.  Partners  may  stipulate  among  themselves 
that  some  one  of  them  only  shall  enter  into  particular  contracts,  or  into 
any  contracts,  or  that  as  to  certain  of  their  contracts  none  shall  be 
liable  except  those  by  whom  they  are  actually  made  ;  but  with  such 
private  arrangements  third  persons,  dealing  with  the  firm  without  notice, 
have  no  concern.  The  public  have  a  right  to  assume  that  every  partner 
has  authority  from  his  co-partner  to  bind  the  whole  firm  in  contracts 
made  according  to  the  ordinary  usages  of  trade. 

This  principle  applies  not  only  to  persons  acting  openly  and  avowedly 
as  partners,  but  to  others  who,  though  not  so  acting,  are,  by  secret  or 
private  agreement,  partners  with  those  who  appear  ostensibby  to  the 
world  as  the  persons  carrying  on  the  business. 

In  the  case  now  before  the  House  the  Court  of  Common  Pleas  decided 
in  favor  of  the  respondent  that  the  appellant,  by  his  execution  of  the 
deed  of  arrangement,  became,  together  with  the  other  creditors  who 
executed  it,  a  partner  with  those  who  conducted  the  business  of  the 
Stanton  Iron  Company.  The  judges  in  the  Court  of  Exchequer 
Chamber  were  equally  divided,  so  that  the  judgment  of  the  Court  of 
Common  Pleas  was  affirmed.  The  sole  question  for  adjudication  by 
your  Lordships  is,  whether  this  judgment  thus  affirmed  was  right. 

I  do  not  propose  to  consider  in  detail  all  the  provisions  of  the  deed. 
I  think  it  sufficient  to  state  them  generally.  In  the  Srs1  place,  there  is 
an  assignment  by  Messrs.  Smith,  to  certain  trustees,  of  the  mines  and 
all  the  engines  and  machinery  used  for  working  them,  together  with  all 
the  stock  in  trade,  and,  in  fact,  all  their  property,  upon  trust,  to  earn- 
on  the  business ;  and,  after  paying  its  expenses,  to  divide  the  net 
income  ratably  amongst  the  creditors  of  Messrs.  Smith  as  often  as 
there  shall  be  funds  in  hand  sufficient  to  pay  one  shilling  in  the  pound  ; 
and,  after  all  the  creditors  are  satisfied,  then  in  trust  for  Messrs.  Smith. 

Up  to  this  point  the  creditors,  though  they  executed  the  deed,  are 
merely  passive  ;  and  the  first  question  is,  What  would  have  been  the 
consequence  to  them  of  their  executing  the  deed  if  the  trusts  had  ended 
there?  Would  they  have  become  partners  in  the  concern  carried  on  by 
the  trustees  merely  because  they  passively  assented  to  its  being  carried 
on  upon  the  terms  that  the  net  income,  i.  e.,  the  net  profits,  should  be 
applied  in  discharge  of  their  demands?     I  think  not.     It  was  argued 


68  PARTNERSHIP   AS    TO   THIRD    PERSONS.  [CHAP.  II. 

that  as  they  would  be  interested  in  the  profits,  therefore  they  would  be 
partners.  But  this  is  a  fallacy.  It  is  often  said  that  the  test,  or  one 
of  the  tests,  whether  a  person  not  ostensibly  a  partner  is  nevertheless, 
in  contemplation  of  law,  a  partner,  is,  whether  he  is  entitled  to  partici- 
pate in  the  profits.  This,  no  doubt,  is,  in  general,  a  sufficiently  accu- 
rate test;  for  a  right  to  participate  in  profits  affords  cogent,  often 
conclusive,  evidence  that  the  trade  in  which  the  profits  have  been  made 
was  carried  on  in  part  for  or  on  behalf  of  the  person  setting  up  such  a 
claim.  But  the  real  ground  of  the  liability  is  that  the  trade  has  been 
carried  on  by  persons  acting  on  his  behalf.  When  that  is  the  case,  he 
is  liable  to  the  trade  obligations,  and  entitled  to  its  profits,  or  to  a  share 
of  them.  It  is  not  strictly  correct  to  say  that  his  right  to  share  in  the 
profits  makes  him  liable  to  the  debts  of  the  trade.  The  correct  mode 
of  stating  the  proposition  is  to  say  that  the  same  thing  which  entitles 
him  to  the  one  makes  him  liable  to  the  other,  namely,  the  fact  that  the 
trade  has  been  carried  on  on  his  behalf;  i.  e.,  that  he  stood  in  the  rela- 
tion of  principal  towards  the  persons  acting  ostensibly  as  the  traders, 
by  whom  the  liabilities  have  been  incurred,  and  under  whose  manage- 
ment the  profits  have  been  made. 

Taking  this  to  be  the  ground  of  liability  as  a  partner,  it  seems  to  me 
to  follow  that  the  mere  concurrence  of  creditors  in  an  arrangement 
under  which  they  permit  their  debtor,  or  trustees  for  their  debtor,  to 
continue  his  trade,  applying  the  profits  in  discharge  of  their  demands, 
does  not  make  them  partners  with  their  debtor,  or  the  trustees.  The 
debtor  is  still  the  person  solely  interested  in  the  profits,  save  only  that 
he  has  mortgaged  them  to  his  creditors.  He  receives  the  benefit  of  the 
profits  as  they  accrue,  though  he  has  precluded  himself  from  applying 
them  to  any  other  purpose  than  the  discharge  of  his  debts.  The  trade 
is  not  carried  on  by  or  on  account  of  the  creditors  ;  though  their  con- 
sent is  necessary  in  such  a  case,  for  without  it  all  the  property  might 
be  seized  by  them  in  execution.  But  the  trade  still  remains  the  trade 
of  the  debtor  or  his  trustees  ;  the  debtor  or  the  trustees  are  the  persons 
by  or  on  behalf  of  whom  it  is  carried  on. 

I  have  hitherto  considered  the  case  as  it  would  have  stood  if  the 
creditors  had  been  merely  passively  assenting  parties  to  the  carrying 
on  of  the  trade,  on  the  terms  that  the  profits  should  be  applied  in  liqui- 
dation of  their  demands.  But  I  am  aware  that  in  this  deed  special 
powers  are  given  to  the  creditors,  which,  it  was  said,  showed  that  they 
had  become  partners,  even  if  that  had  not  been  the  consequence  of 
their  concurrence  in  the  previous  trust.  The  powers  may  be  described 
briefly  as,  first,  a  power  of  determining  by  a  majority  in  value  of  their 
body,  that  the  trade  should  be  discontinued,  or,  if  not  discontinued, 
then,  secondly,  a  power  of  making  rules  and  orders  as  to  its  conduct 
and  management. 

These  powers  do  not  appear  to  me  to  alter  the  case.  The  creditors 
might,  by  process  of  law,  have  obtained  possession  of  the  whole  of  the 
property.     By  the  earlier  provisions  of  the  deed,  they  consented  to 


§  3.]  TEST    OF   INTENTION.  69 

abandon  that  right,  and  to  allow  the  trade  to  be  carried  on  by  the 
trustees.  The  effect  of  these  powers  is  only  to  qualify  their  consent. 
They  stipulate  for  a  right  to  withdraw  it  altogether ;  or,  if  not,  then 
to  impose  terms  as  to  the  mode  in  which  the  trusts  to  which  they  had 
agreed  should  be  executed.  I  do  not  think  that  this  alters  the  legal 
condition  of  the  creditors.  The  trade  did  not  become  a  trade  carried 
on  for  them  as  principals,  because  they  might  have  insisted  on  taking 
possession  of  the  stock,  and  so  compelling  the  abandonment  of  the 
trade,  or  because  they  might  have  prescribed  terms  on  which  alone  it 
should  be  continued.  Any  trustee  might  have  refused  to  act  if  he 
considered  the  terras  prescribed  by  the  auditors  to  be  objectionable. 
Suppose  the  deed  had  stipulated,  not  that  the  creditors  might  order  the 
discontinuance  of  the  trade,  or  impose  terms  as  to  its  management, 
but  that  some  third  person  might  do  so,  if,  on  inspecting  the  ac- 
counts, he  should  deem  it  advisable,  it  could  not  be  contended 
that  this  would  make  the  creditors  partners,  if  they  were  not  so 
already ;  and  I  can  see  no  difference  between  stipulating  for  such 
power  to  be  reserved  to  a  third  person,  and  reserving  it  to  themselves. 

I  have,  on  these  grounds,  come  to  the  conclusion  that  the  creditors 
did  not,  by  executing  this  deed,  make  themselves  partners  in  the 
Stanton  Iron  Company,  and  I  must  add  that  a  contrary  decision  would 
be  much  to  be  deprecated.  Deeds  of  arrangement,  like  that  now 
before  us,  are,  I  believe,  of  frequent  occurrence;  and  it  is  impossible 
to  imagine  that  creditors  who  execute  them  have  any  notion  that  by  so 
doing  they  are  making  themselves  liable  as  partners.  This  would  be 
no  reason  for  holding  them  not  to  be  liable,  if,  on  strict  principles  of 
mercantile  law,  they  are  so  ;  but  the  very  fact  that  such  deeds  are  so 
common,  and  that  no  such  liability  is  supposed  to  attach  to  them, 
affords  some  argument  in  favor  of  the  appellant.  The  deed  now  before 
us  was  executed  by  above  a  hundred  joint  creditors ;  and  a  mere 
"■lance  at  their  names  is  sufficient  to  show  that  there  was  no  intention 
on  their  part  of  doing  anything  which  should  involve  them  in  the  obli- 
gations of  a  partnership.  I  do  not  rely  on  this  ;  but,  at  least,  it  shows 
the  general  opinion  of  the  mercantile  world  on  the  subject.  I  may 
remark  that  one  of  the  creditors  I  see  is  the  Midland  Railway  Com- 
pany, which  is  a  creditor  for  a  sum  only  of  £39,  and  to  suppose  that 
the  directors  could  imagine  that  they  were  making  themselves  partners 
is  absurd. 

The  authorities  cited  in  argument  did  not  throw  much  light  upon  the 
subject.  I  can  find  no  case  in  which  a  person  has  been  made  liable 
as  a  dormant  or  sleeping  partner,  where  the  trade  might  not  fairly  be 
said  to  have  been  carried  on  for  him,  together  with  those  ostensibly 
conducting  it,  and  when,  therefore,  he  would  stand  in  the  position  of 
principal  towards  the  ostensible  members  of  the  firm  as  his  agents. 
This  was  certainly  the  case  in  Waugh  '••  Carver.  There  Messrs.  <  larver, 
who  were  ship  agents  at  Portsmouth,  agreed  with  Giesler,  a  ship  agent 
at  Plymouth,  that  if  he  would    establish    himself  as  a  ship  agent  at 


70  PARTNERSHIP    AS    TO    THIRD    PERSONS.  [CHAP.  II. 

Cowes,  they  would  share  between  them  the  profits  of  their  respective 
agencies  in  certain  stipulated  proportions.  When,  therefore,  Giesler, 
in  pursuance  of  the  agreement,  did  establish  himself  at  Cowes,  and 
there  carry  on  the  business  of  a  ship  agent,  he,  in  fact,  carried  it  on 
for  the  benefit  of  Messrs.  Carver  as  well  as  of  himself;  and  the  court 
held  that,  in  these  circumstances,  the  stipulation  which  they  had  en- 
tered into  that  neither  party  to  the  agreement  should  be  answerable  for 
the  acts  of  the  other,  was  a  stipulation  which  they  could  not  make  so 
as  therebj'  to  affect  third  persons.  Each  firm  was  carrying  on  business 
on  account  not  only  of  itself  but  also  of  the  other  firm  ;  this,  there- 
fore, made  each  firm  the  agent  of  the  other. 

The  case  of  Bond  v.  Pittard,  3  M.  &  W.  357,  could  admit  of  no  doubt. 
The  question  was,  whether  G.  H.  Watts  and  P.  H.  Watts  could  sue 
jointly  for  business  transacted  by  them  as  attorneys.  They  had  agreed 
to  become  partners  on  a  stipulation  that  P.  H.  Watts  should  always 
receive  £300  yearly  out  of  the  first  profits,  as  his  share,  and  should  not 
be  liable  for  airy  losses.  It  was  argued  that  this  latter  stipulation  pre- 
vented them  from  being  partners  ;  but  the  court  held  the  contrary. 
Each  of  them  worked  for  the  common  benefit  of  both,  and  each  of  them, 
therefore,  acted  as  agent  of  the  other.  The  produce  of  the  labor  of 
each  was  to  be  brought  into  a  common  fund,  to  be  afterwards  shared 
according  to  certain  arrangements  between  themselves.  The  case  was 
really  free  from  doubt. 

A  similar  principle  explains  and  justifies  the  decision  of  the  Court  of 
Common  Pleas  in  Barry  v.  Nesham,  3  C.  B.  641.  The  question  was, 
whether  the  defendant  was  liable  for  goods  furnished  to  one  Lowthin, 
in  the  wa}-  of  his  business  as  the  printer  and  publisher  of  a  newspaper. 
Nesham  had  sold  the  stock  and  good-will  of  the  paper  to  Lowthin,  in 
consideration  of  £1,500,  and  on  a  further  stipulation  that  for  seven  years 
the  profits  were  to  be  applied  as  follows  :  that  is  to  say,  Lowthin  was 
to  have  the  first  £150  of  the  annual  profits,  then  Nesham  was  to  have 
them  to  the  extent  of  £500,  if  they  made  so  much,  and  Lowthin  was 
to  have  all  beyond.  It  is  clear  that  Lowthin  was  conducting  the  busi- 
ness for  the  common  benefit  of  both,  subject  to  their  private  arrange- 
ments as  to  the  shares  they  should  separately  be  entitled  to ;  Lowthin 
was,  therefore,  clearly  the  agent  of  Nesham. 

Owen  v.  Body  is  at  most  a  case  in  which  a  dictum  ma}'  be  found. 
The  Court  of  Queen's  Bench  was  quite  right  in  holding  that  the  cred- 
itors were  justified  in  refusing  to  execute  the  deed  tendered  to  them  ; 
and  that  is  all  which  was  decided. 

None  of  the  other  cases  cited  carried  the  doctrine  farther  than  those 
I  have  referred  to,  and  I  therefore  think  that  in  this  case  the  judgment 
appealed  against  ought  to  be  reversed.1 

1  The  opinions  of  Campbell,  Ch.  J.,  and  of  Wensletdale,  L.,  have  been  omitted. 
Brougham  and  Chelmsford,  LL.,  concurred. 


§  3.]  TEST    OF   INTENTION.  71 


BULLEN  et  al.  v.  SHARP. 
L.  It.   1  C.  P.  86.     1865. 

This  was  an  action  on  a  polic}'  of  insurance  against  the  defendant 
as  underwriter.  The  policy  was  actually  underwritten  in  the  name  of 
the  defendant's  son.  The  question  in  the  cause  is,  whether  the  de- 
fendant was  a  partner  in  the  underwriting  business  carried  on  in  his 
son's  name,  so  as  to  make  him  liable  to  third  persons  on  contracts 
made  in  the  course  of  that  business.  On  the  trial,  a  verdict  was  taken 
b}-  consent  for  the  plaintiffs,  subject  to  a  special  case,  as  part  of  which 
it  was  agreed  that  the  court  might  draw  any  reasonable  inferences  of 
fact.     The  court  below  determined  the  question  in  favor  of  the  plaintiffs. 

It  appears,  that  in  March,  1857,  the  son  of  the  defendant  entered 
into  a  written  agreement  with  one  Fenn,  an  underwriter,  which  is  set 
out  in  the  fourth  paragraph  of  the  case.  By  this  agreement,  the  son 
was  to  be  an  underwriter ;  but  the  management  of  the  business  was 
to  be  confided  to  Fenn,  who,  in  consideration  of  a  salaiy  of  £30o  a 
year,  was  to  act  for  the  sou.  On  the  same  day  on  which  this  agree- 
ment was  made,  the  defendant  authorized  Fenn  to  state  to  the  com- 
mittee of  Lloyd's  that  he,  the  defendant,  had  placed  at  Fenn's  disposal 
£5,000,  and  intended  to  give  his  son  further  aid,  if  needed.  In  Nov- 
ember, 1858,  it  was  resolved  to  extend  the  business  carried  on  by 
Fenn  in  the  name  of  the  son;  and,  by  an  agreement  between  them, 
Fenn's  salary  was  raised  to  £350.  On  the  1st  of  January,  1859,  the 
son  signed  a  letter  addressed  to  the  defendant,  which  is  set  out  in 
paragraph  11  of  the  case.  By  it,  in  consideration  of  the  defendant's 
guaranteeing  the  son  to  the  extent  of  £5,000  in  his  business  of  an 
underwriter  until  by  such  business  he  should  acquire  the  clear  sum  of 
£5,000,  the  son  promised  to  pay  the  defendant  during  their  joint  lives 
an  annuity  of  £500  a  year,  to  be  increased  in  case  one- fourth  of  the 
son's  average  annual  net  profits  during  the  first  three  years  should 
exceed  £500,  to  a  sum  equal  to  one-fourth  of  such  net  average  annual 
profits.  This  arrangement,  as  worded,  would  not  increase  the  annuity, 
unless  the  son's  average  net  profits  during  the  first  three  years  ex- 
ceeded £2,000  a  year;  so  that  it  would  seem  the  parties  contemplated 
carrying  on  a  business  much  more  extensive  than  was  justified  by  a 
capital  of  £5,000  ;  and  it  is  not  very  surprising  to  find  that,  before 
the  three  years'  end,  the  son  was  a  bankrupt.  It  was  expressly 
stipulated  in  the  letter  that  the  defendant  should  not  be  a  partner 
with   his   son   in   his    business. 

In  August,  1859,  the  son  married;  and  prior  to  his  marriage  ho 
executed  a  deed  of  settlement,  which  is  made  a  part  of  this  case. 
This  deed  was  between  the  son,  of  the  first  part,  the  intended  wife, 
of  the  second  part,  and  two  trustees  (of  whom  the  defendant  was  one), 
of  the  third  part.  It  recites  the  agreements  between  the  son  and  Fenn 
for  carrying  on  the  son's  business  under  the  management  of  Fenn,  and 


72  PARTNERSHIP  AS  TO  THIRD  PERSONS.      [CHAP.  II. 

also  the  agreements  between  the  son  and  the  defendant,  by  which  the 
son  bound  himself  to  pay  the  defendant  an  annuity,  and  an  agreement, 
in  contemplation  of  the  marriage,  by  which  the  son  engaged  to  conve\'p 
some  railway  shares  and  other  property,  and  also  all  the  proceeds  of 
his  underwriting  .business,  to  trustees  on  certain  trusts ;  and  then 
the  son  does  by  the  deed  assign  over  to  the  trustees  (one  of  whom 
is  the  defendant)  all  monej'S  the  proceeds  of  the  underwriting  business 
then  in  the  hands  of  Fenn  or  any  other  person  who  might  be  sub- 
stituted as  manager  of  the  son's  business,  or  thereafter  so  to  be, 
and  gave  them  a  power  of  attorney  to  recover  such  moneys  from 
the  manager ;  and  then  the  indenture  declares  the  trusts  on  which  the 
moneys  are  to  be  held.  These  are,  in  the  first  place,  to  pay  the 
annuity  to  the  defendant ;  next,  to  pay  the  son  an  allowance  of  £500 
a  year,  to  be  increased,  if  the  business  prospered,  to  £750;  then, 
to  accumulate  the  surplus  until  it  amounted  to  £8,500,  and  so  re- 
mained for  two  years  without  reduction,  when  the  engagement  to 
pay  over  the  future  proceeds  of  the  business  to  the  trustees  was  to 
cease.  There  is  a  proviso  that,  at  any  time  during  the  continuance 
of  the  engagement,  the  trustees  were,  upon  the  request  of  the  son,  or 
his  manager  for  the  time  being,  to  raise  out  of  the  property  assigned 
by  the  son  and  the  accumulated  fund  any  sum  required  to  meet 
emergencies  occurring  in  the  underwriting  business.  The  ultimate 
trusts  of  the  accumulated  fund,  when  it  should  have  remained  two 
years  without  reduction  at  the  sum  of  £8,500,  were  to  repa}'  any 
advances  made  bj*  the  defendant  under  his  guarant}',  and,  subject 
thereto,   for  the  benefit   of  the  wife    and  children.1 

Bramwell,  B.  In  this  case,  the  plaintiffs  declare  that  they  made  a 
polic}'  of  insurance,  and  that  "  the  defendant,  in  consideration  of  a  cer- 
tain premium  paid  to  him  bjT  the  plaintiffs,  subscribed  the  said  policy 
for  £100,  and  became  an  insurer  thereon  to  the  plaintiffs  for  that 
amount."  The  defendant  pleads  "that  he  did  not  subscribe  the  said 
polic}'  or  become  an  insurer,  as  alleged."  And  the  question  is,  whether 
the  plaintiffs  have  proved  the  allegation  so  traversed.  This  is  the  real 
and  ultimate  question  ;  because,  though  this,  like  other  cases,  has  been 
argued  as  though  the  question  were  whether  the  defendant  was  a  partner 
with  somebody  else,  and  though  this  way  of  arguing  is  reasonable 
enough,  as  prima  facie  a  partner  is  liable  for  the  acts  of  his  co-partner 
within  the  ordinary  scope  of  partnership  authority,  yet,  inasmuch  as  a 
man  may  be  a  partner  and  not  liable,  or  not  a  partner  and  yet  liable, 
the  determination  of  partnership  or  no  partnership  does  not  settle  the 
question  which  still  remains,  —  "  Did  the  defendant  subscribe  the  policy 
and  become  an  insurer?"  Now,  he  did  not  subscribe  it  with  his  own 
hand ;  nor  is  he  liable  on  the  ground  of  holding  himself  out  as  a  part- 
ner or  principal  in  this  matter  ;  for  he  has  not  done  so.  The  only 
other  way  in  which  he  can  be  liable  is,  b}-  reason  of  his  having  given 
authority  to  the  person  who  signed  it  so  to  sign  and  bind  him.     The 

1  This  statement  of  facts  is  taken  from  Mr.  Justice  Blackburn's  opinion. 


§  3.]  TEST   OF   INTENTION.  73 

person  who  did  sign  it  is  described  in  the  case  as  a  "  clerk  ;  "  and  he 
signed  the  name  of  the  defendant's  son.  Then,  did  the  defendant  give 
that  person  any  authority  so  to  sign  and  bind  him  ?  That  he  did  not, 
in  words,  is  certain  ;  nor  did  he  in  intention  ;  nor  did  the  clerk  intend 
to  bind  him  ;  nor  did  his  son,  nor  Fenn  ;  nor  did  the  plaintiffs  suppose 
he  was  bound,  or  intend  to  deal  with  or  trust  him,  but  his  son.  If, 
then,  he  is  liable,  if  he  has  given  such  authority,  it  is  against  the  inten- 
tions of  all  parties ;  it  is  in  spite  of  their  meaning  the  contrary,  and 
must  therefore  be  from  some  force  in  the  nature  of  the  transaction  itself. 
And  this  may  be.  If  the  defendant  was  really  the  principal,  or  one  of 
the  principals,  in  the  transaction  ;  if  those  who  acted  really  were  his 
agents  ;  if,  on  the  truth  appearing,  he  had  a  right  to  say  the  contract 
was  made  with  him,  and  to  enforce  it,  —  he  ought  to  be  and  would  be 
liable.  As,  for  instance,  if  there  was  a  business  which  required  the 
buying  of  goods  on  credit,  and  if  a  persou  tried  to  carry  it  on  in  the 
name  of  an  agent,  whether  such  agency  was  an  agency  of  a  partnership 
or  any  other,  so  that,  upon  the  purchase  of  goods  by  the  agent  or  part- 
ner, the  property  vested  wholly  or  in  part  in  the  first  named  person, 
then  he  would,  as  it  seems  to  me,  be  liable,  though  he  had  stipulated 
with  his  agent  or  partner  that  he  should  not  be  ;  because  he  would  have 
tried  for  an  impossibility,  for  a  thing  repugnant  in  itself,  viz.,  that  the 
contract  should  be  made  with  him,  for  his  benefit,  but  not  to  bind  him. 
It  becomes  necessary,  then,  to  examine  the  facts.  (After  stating  the 
facts  the  learned  Baron  continued.) 

Why,  then,  the  deed  being  bona  fide,  is  the  defendant  a  partner  or  prin- 
cipal in  the  business?  He  can  make  no  contract,  nor  order  one,  nor  for- 
bid one,  nor  enforce  one,  nor  release  one.  If  the  profits  were  £10.000 
in  the  year,  he  would  get  nothing  but  his  annuity  ;  the  residue  would  go 
to  his  son  and  the  trust  fund.  His  annuity  would  be  larger,  indeed  ; 
but  that  is  unimportant.  If  there  were  no  profits  in  any  year,  he  would 
still  be  entitled  to  his  £500  annuity.  How  can  this  state  of  facts  prove 
that  the  defendant  "  subscribed  the  said  policy  and  became  an  insurer?" 
It  seems  to  me,  therefore,  that,  if  the  defendant  is  held  to  have  "sub- 
scribed this  policy  and  become  an  insurer,"  it  will  be  so  held,  though,  as 
I  have  said,  he  has  not  done  so  in  form  nor  in  substance  ;  and  that  he 
has  so  done  somehow,  though  there  is  no  fraud,  without  his  or  any  one 
else  concerned  intending  it.  Surely  it  seems  enough  to  state  this  to 
show  that  it  cannot  be  true,  and  that  therefore  the  defendant  is  not  liable. 
The  harden  of  proof  to  the  contrary  is  on  the  plaintiffs.  Now,  what 
reason  do  they  give?  They  say  that  the  defendant  is  a  partner  with 
his  son  ;  and  that,  if  not  partners  inter  se,  they  are  so  as  regards  third 
parties.  A  most  remarkable  expression  !  Partnership  means  a  certain 
relation  between  two  parties.  How,  then,  can  it  be  correct  to  say  that 
A.  and  B.  are  not  in  partnership  as  between  themselves,  they  have  not 
held  themselves  out  as  being  so,  and  yet  a  third  person  has  a  right  to 
say  they  are  so  as  relates  to  him?  But  that  must  mean  inter  ft  ;  for 
partnership  is  a  relation  inter  8e,  and  the  word  cannot  be  used  exceDt 


74  PARTNERSHIP   AS    TO   THIRD   PERSONS.  [CHAP.  II. 

to  signify  that  relation.     A.  is  not  the  agent  of  B. ;  B.  has  never  held 
him  out  as  such  ;  yet  C.  is  entitled,  as  between  himself  and  B.,  to  say 
that  A.  is  the  agent  of  B.  !     Why  is  he  so  entitled,  if  the  fact  is  not  so, 
and  B.  has  not  so  represented  ?     But  ''partnership,"  and  a  "  right  to 
call  persons  partners  as  regards  third  parties,"  are  words,  and  the  thing 
must  be  looked  at,  viz.,  the  taking  or  sharing  of  profits,  which  it  is  said 
gives  C.  a  right  as  against  B.  to  say  B.  is  a  partner  of  A.    Why  should 
it?     I  trust  that,  in  the  present  state  of  authorit}-,  this  question  may  be 
freelv  handled  without  presumption,  and   that  the  goodness  of  such 
a  rule  may  be  examined  ;  because,  though  we  are  bound  to  administer 
the  law  as  we  find  it,  yet,  when  we  are  considering  what  is  the  law,  we 
may  not  improperly  inquire  into  the  reasonableness  of  that  suggested. 
Why,  then,  does  a  taking  or  sharing  of  A.'s  profits  by  B.  entitle  C.  to 
demand  payment  b}'  B.  of  A.'s  debts  in  the  trade?     How,  if  there  is 
such  taking  or  sharing  in  this  case,  does  it  prove  that  the  defendant 
"  subscribed  the  policy  and  became  an  insurer"  ?     If  A.  agrees  with  B. 
to  share  profits  and  losses,  but  not  to  interfere  with  the  business,  and 
not  to  buy  nor  sell,   and  does  not  interfere,  nor  buy  nor  sell,  and  C, 
knowing  this,  deals  with  B.,  he  would  have  no  claim  on  A.     Why  should 
he,  if  he  does  not  know  of  it?     Why,  upon  finding  out  something  be- 
tween A.  and  B.  which  has  in  no  wa3r  affected  or  influenced  him,  should 
he  who  has  dealt  with  B.  have  a  claim  on  A.     It  is  said,  because  prof- 
its are  what  the  creditor  trusts  to ;  they  are  his  fund  for  payment. 
This  would  be  a  bad  reason,  if  true  in  fact.     A  man  who  trusts  another 
generally,  has  a  claim  on  his  profits  and  capital  too.     How  does  a  man 
who  trusts  the  former  only  more  affect  the  creditor's  fund ?     But,  fur- 
ther, it  really  is  not  true  in  substance,  only  in  words.     It  is  not  a  re- 
ceipt of  profits,  in  substance,  that  makes  a  man  liable.     If  I  agree  to 
receive  a  sum  in  proportion  to  profits,  as,  for  instance,  a  sum  equal  to 
a  tenth,  I  am  not  liable.     If  I  receive  a  tenth,  I  am.     What  is  the 
difference,  except  in  words,  at  least  as  far  as  creditors  are  concerned? 
How  can  one  set  of  words  between  A.  and  B.  give  C.  a  right,  and  the 
same  thing  in  other  words  not?     How  many  men  in  a  thousand,  not 
lawyers,  could  be  got  to  understand  that,  of  the  two  servants  of  a  firm, 
the  one  who  received  a  tenth  of  the  profits  was  liable  for  its  debts,  and 
the  other  who  received   a  sum  equal  to  a  tenth  was  not?     This  Mr. 
Justice  Story  calls  "satisfactory."      Story  on  Part.  §  32.     Satisfactory 
in  what   sense?     In   a   practical   business    sense?      No;    but    in   the 
sense   of  an    acute    and    subtle    lawyer,    who   is    pleased  with  refined 
distinctions,  interesting  as  intellectual  exercises,  though  unintelligible 
to  ordinary  men,  and  mischievous  when  applied  to  the  ordinary  affairs 
of  life.     Lord  Eldon  did  not  think  it  satisfactory.     Ex.  parte  Hamper, 
17   Ves.    404.     Such  a  law  is  a   law   of   surprise   and  injustice,  and 
against  good  policy.    It  fixes  a  liability  on  a  man  contrary  to  his  intent 
and  expectation,   and  without  reason,  and  gives  a  benefit  to  another 
which  he  did  not  bargain  for  and  ought  not  to  have,  and  prevents  that 
free  use  of  capital  and  enterprise  which  is  so  important.     It  is  said  that 


,]  TEST   OF    INTENTION.  75 


this  is  true  of  a  dormant  partner.  It  is  not.  His  existence  may  be 
unknown  to  the  creditor :  but  the  dormant  partner  knows  he  is  liable, 
and  means  to  be  ;  and  the  creditor  trusts  all  such  persons  ;  he  means 
to  deal  with  all  real  persons.  It  may  be  said  that,  if  this  reasoning  is 
right,  a  man  might  bargain  to  receive  all  the  profits  of  a  business,  and 
not  be  liable.  The  answer  is,  the  thing  is  impossible.  There  never 
was.  and  never  will  be,  a  bonaficU  agreement  by  one  man  to  carry  en 
a  business,  bear  all  its  losses,  and  pay  over  all  its  profits.  Should  such 
an  agreement  appear,  it  would  obviously  be  colorable.  Where  there  is 
a  chance  of  profit  to  the  trader,  there  such  an  agreement  may  be  honest ; 
and,  where  honest,  ought  not  to  make  him  liable  who  is  certainly  to 
receive  some  of  the  profits,  and  perhaps  all. 

I  have  hitherto  dealt  with  the  case  on  principle.  I  proceed  to 
examine  the  authorities.  The  labor  formerly  needful  is  now  rendered 
unnecessary  by  Cox  v.  Hickman.  That  case  has  settled  the  law,  I  may 
be  permitted,  I  hope,  to  say,  in  a  perfectly  satisfactory  manner.  It  is 
there  laid  down  that  the  question  in  such  cases  as  the  present  is  one 
of  authority,  one  of  agency.  Lord  Campbell  says:  "The  defendant 
can  only  be  liable  upon  the  supposition  that  the  person  who  wrote  the 
acceptance  on  the  bills  of  exchange  was  their  mandatory  for  that  pur- 
pose." Lord  Wensleydale  says:  "And  the  simple  question  will  be 
this,  whether  Haywood  was  authorized  by  either  of  the  defendants  as  a 
partner  in  that  company  to  bind  him  by  those  acceptances."  His  Lord- 
ship proceeds:  "  Haywood  must  be  taken  to  have  been  authorized  to 
accept  for  them  by  those  who  actually  carried  on  business  under 
that  firm.  Were  the  appellants  partners  in  it?"  And,  further:  "  The 
question  then  is,  whether  this  deed  makes  the  creditors  who  sign  it 
partners  with  the  trustees,  or,  what  is  really  the  same  thing,  agents  to 
bind  them  by  acceptances  on  account  of  the  business."  And,  gener- 
ally, I  refer  to  his  whole  judgment,  particularly  to  the  passage  at 
p.  313,  beginning,  "  Hence  it  becomes  a  test  of  the  liability,"  down  to 
"liable  as  a  partner."  Lord  Cranworth  puts  the  same  two  arguments 
together  at  p.  30G.  I  refer  to  the  passage  beginning.  "  It  was  argued," 
and  ending,  "  to  have  been  made."    This,  then,  is  our  guide  for  the  future. 

The  question  here  is,  Was  the  underwriter's  business  carried  on  by 
persons  acting  on  the  defendant's  behalf?  Now,  it  certainly  was  not. 
The  clerk  who  signed  the  policy,  Fenn,  and  the  son,  acted  on  the  son's 
behalf.  That  is,  unless  the  whole  is  a  sham,  —  which,  as  I  have  be- 
fore said,  I  think  is  not  open  to  us  to  consider,  nor  true,  if  it  were 
open  to  us.  This  ought  to  dispose  of  the  case.  But  even  if  we 
assume  that  the  law  supposed  to  exist  before  Cox  v.  Hickman  remains 
untouched,  that  is  to  say,  the  supposed  law  of  Waugh  v.  Carver,  I 
think  the  same  conclusion  ought  to  be  come  to.  Lord  Wensley- 
dale does  not  notice  that  case.  Lord  Cranworth  does,  and,  with 
submission,  gives  a  better  reason  for  the  decision  than  is  to  be  found 
in  the  case  itself.  The  Chief  Justice  there  says  the  question  is 
whether  they  have  not  constituted  themselves  partners  in  respect  lu 


76  PARTNERSHIP   AS    TO   THIED    PERSONS.  [CHAP.  II. 

other  persons,  and  puts  his  decision  on  the  ground  that  "  he  who 
takes  a  moiet}7  of  all  the  profits  indefinitely  shall  by  operation  of 
law  be  liable  to  losses."  Let  us  hope  that  this  notion  is  overruled, 
—  one  which  I  believe  has  caused  more  injustice  and  mischief  than 
an}'  bad  law  in  our  books.  But  even  if  not,  how  is  this  case  within 
it?  By  the  letter  of  the  1st  of  January,  1859,  after  the  business  had 
proved  profitable,  the  son  agreed  to  pay  his  father,  for  their  joint 
lives,  £500  a  year,  absolutely,  not  out  of  profits,  nor  dependent  on 
them ;  with  a  provision  for  an  increase  in  proportion  to  profits  if  they 
reached  beyond  a  certain  amount.  This  would  not  make  the  defendant 
a  receiver  of  profits,  nor  give  him  a  right  to  an  account,  nor,  in  fact, 
bring  him  within  an}-  of  the  old  fancied  rules  of  liability.  Then  comes 
the  settlement,  in  which  the  defendant  is  a  trustee.  As  far  as  the  set- 
tlement alone  is  concerned,  the  defendant  is  no  more  liable  than  the 
other  trustee.     And  why  is  he  to  be  liable? 

It  remains  to  notice  the  judgment  of  the  court  below.  With  great 
respect,  I  think  Cox  v.  Hickman  was  not  followed.  The  Chief  Justice 
says  the  deed  made  the  defendant  a  partner,  by  giving  him  an  interest 
in  the  business ;  and  he  finishes  by  saying  the  question  is  whether  the 
creditors  may  come  on  the  defendant  in  respect  of  the  profits.  But, 
according  to  the  judgment  in  Cox  v.  Hickman,  the  question  does  not 
turn  on  that.  Byles,  J.,  seems  to  consider  the  deed  as  a  contrivance 
for  giving  the  defendant  the  profits,  —  that,  in  realit}-,  it  was  his  busi- 
ness. If  so,  of  course  he  is  liable.  Montague  Smith,  J.,  says  he 
thinks  the  deed  an  arrangement  b\-  which  the  defendant  was  to  have 
the  profits  as  profits  eo  nomifie,  and  that  he  is  liable  as  a  partner.  But, 
if  Lords  Cranworth  and  Wensleydale  have  laid  down  the  true  rule,  it  is 
not  that  indicated  in  the  last  expression. 

It  seems  to  me,  then,  there  is  here  no  partnership,  no  taking  of 
profits,  which  could  have  brought  the  case  within  what  was  supposed 
to  be  law  before  Cox  v.  Hickman  ;  that,  on  reason  and  principle,  that 
supposed  law  was  wrong  ;  that  it  is  now  condemned  by  the  authority  of 
Cox  v.  Hickman  ;  that,  anyhow,  Cox  v.  Hickman  is  the  governing  case  ; 
and  that  it  lays  down  rules  which  decide  this  in  favor  of  the  defendant. 

I  hope  I  shall  not  be  charged  with  arrogance  for  the  wa}'  in  which  I 
have  spoken  of  bygone  opinions.  The  law  had  drifted  into  the  condi- 
tion from  which  it  was  rescued  by  Cox  v.  Hickman.  No  one  in  partic- 
ular was  responsible  for,  and  probably  no  one  person  could  have  put  it 
at  once  in  the  position  it  was  in.  But  the  true  line  had  been  departed 
from,  at  first  but  a  little,  and  for  a  good  reason  ;  and  every  subsequent 
move  took  it  further  away  in  a  wrong  direction,  till  it  was  happily 
brought  back  by  Cox  v.  Hickman. 

The  opinions  of  the  majority  of  the  court  being  thus  in  favor  of  the 
defendant,  the  judgment  of  the  court  below  was  reversed.1 

Judgment  reversed. 

1  Blackburn,  J.,  and  Channels,  B.,  delivered  concurring  opinions.  Shee,  J.,  and 
Pigott,  B.,  dissented. 


§  3.]  TEST    OF   INTENTION.  77 


WILD   v.   DAVENPORT   et   al. 

48  N.  J.  L.  129  :  7  At.  295.  1SS6. 

J.  S.  Davenport,  E.  L.  Voorhees,  W.  S.  Johnson,  and  J.  B.  Daven- 
port entered  into  partnership  under  the  firm  name  of  Davenport,  John- 
son, &  Co.,  by  articles  of  co-partnership  dated  Nov.  1,  1880.  The 
articles  provided  that  the  co-partnership  should  commence  Nov.  1,  1880, 
and  continue  for  the  term  of  three  years  ;  also  that  in  case  any  of  the 
said  partners  should  die  before  the  expiration  of  the  co-partnership,  the 
sum  standing  to  his  credit  at  that  time  in  the  assets  of  the  firm  should 
remain  as  a  part  of  the  capital  of  the  firm  until  the  expiration  of  the 
co-partnership,  when  all  moneys  contributed  to  the  capital  by  any  of 
the  members  should  be  repaid  to  such  contributors  out  of  the  firm  assets 
before  am'  division  of  the  profits  should  be  made. 

Johnson  died  in  July,  1881,  leaving  a  will  appointing  the  defendants 
in  error  executors.  He  had  contributed  $15,000  of  capital,  and  at  his 
death  617,000  were  standing  to  his  credit.  This  sum  continued  in  the 
business  until  the  expiration  of  the  partnership  on  October  31,  1883. 
The  business  was  carried  on  by  the  surviving  partners.  The  executors 
examined  the  books  and  accounts  of  the  firm  from  time  to  time,  but  did 
not  otherwise  interfere  with  or  participate  in  the  business.  It  did  not 
appear  that  any  profits  were  ever  received  b}'  them  from  the  business, 
or  that  the  capital  standing  in  the  deceased  partner's  name  was  ever 
withdrawn  by  them. 

In  October,  1883,  plaintiff  sold  the  firm  of  Davenport,  Johnson,  & 
Co.,  a  bill  of  merchandise,  and  this  suit  was  brought  against  the  surviv- 
ing partners  and  the  executors  of  the  deceased  partner,  to  charge  them 
personally  jointly  as  partners. 

The  judge  at  the  circuit  decided  that  the  executors  of  the  deceased 
partner  could  not  be  held  personally  liable  as  partners. 
For  the  plaintiff  in  error,  H.  F.  Galpin. 
Contra,    Wall  is  <&  Edwards. 

DepuEj  J.  The  bill  of  exceptions  in  this  case  presents  the  single 
question  whether,  upon  the  facts  stated,  the  defendants  in  error,  execu- 
tors of  the  deceased  partner,  became  personally  liable  as  partners  for 
debts  contracted  by  the  firm  after  the  death  of  the  testator. 

Partnership  is  a  relation  arising  from  aontract.  It  is  usually  defined 
to  be  a  voluntary  contract  between  competent  persons  to  place  their 
money,  effects,  labor,  and  skill,  or  some  or  all  of  them,  in  lawful  com- 
merce or  business,  upon  the  understanding  that  there  shall  be  a  com- 
munion of  the  profits  thereof  between  them.  Story  on  Part.  §2  ;  3 
Kent,  23.  Mr.  Justice  Lindley  quotes  from  "Words  of  Celebrity"'  a 
number  of  definitions  of  partnership,  in  all  of  which  the  clement  of 
contract  or  agreement  is  fundamental.  1  Lind.  on  Part.  2.  Inter  aese 
the  fact  of  partnership,  as  well  as  the  rights,  duties,  and  obligations  of 
partners,  arises  wholly  from  the  terms  of  the  contract,  and  as  to  third 


78  .  PARTNERSHIP   AS   TO    THIRD    PERSONS.  [CHAP.  II. 

persons  aud  creditors  the  same  rule  prevails,  except  where  the  persons 
concerned  have  held  themselves  out  as  partners  —  have  acted  ostensibly 
as  interested  in  the  business,  as  if  they  were  partners  in  it,  and  have 
so  conducted  themselves  as  to  lead  people  to  suppose  that  the}-  were 
willing  to  be  regarded  by  them  as  if  they  were  partners  in  fact.  1  Lind. 
on  Part.  47  ;  Central  Savings  Bank  v.  Walker,  66  N.  Y.  424  ;  Mer- 
shon  v.  Hobensack,  2  Zab.  372;  3  Id.  580. 

Nor  is  it  every  contract  for  a  share  of  the  profits  of  a  business  that 
will  create  a  partnership  either  inter  sese  or  as  to  creditors.  Thus,  a 
contract  for  the  employment  of  agents  or  servants  for  a  proportion  of 
the  profits  of  the  business  as  salaries  or  wages  for  services  does  not 
make  such  persons  partners  or  liable  as  partners  for  debts  contracted 
in  the  business.  Voorhees  v.  Jones,  5  Dutcher,  270  ;  Nutting  v.  Colt, 
3  Halst.  Ch.  539  ;  Hargrave  v.  Conroy,  4  C.  E.  Green,  281  ;  Berthold 
v.  Goldsmith,  24  How.  536.  To  subject  a  person  not  ostensibly  a 
partner  to  liability  for  partnership  debts,  there  must  be  some  contract 
to  which  he  is  a  party  in  respect  to  a  communion  of  profits,  which  gives 
him  control  as  principal  over  the  conduct  of  the  business,  or  create,  as 
between  him  and  the  ostensible  partner,  the  relation  of  principal  and 
agent.  Every  partner,  indeed,  virtually  embraces  the  character  both 
of  a  principal  and  of  an  agent.  So  far  as  he  acts  for  himself  and  his 
own  interest  in  the  common  concerns  of  the  partnership,  he  maj'  pro- 
perly be  deemed  a  principal ;  and  so  far  as  he  acts  for  his  partners, 
he  ma}-  properly  be  considered  an  agent.  Stor}7  on  Part.  §1.  In 
Voorhees  v.  Jones,  the  decision  that  a  servant  or  agent  who  had  a  share 
of  profits  simply  as  compensation  for  services  was  neither  a  partner,  nor 
liable  for  partnership  debts,  was  placed  b\~  Chief  Justice  Whelfley  on 
the  ground  that  such  a  person  had  no  control  over  the  operations  of  the 
firm,  and  could  not  direct  its  investments  nor  prevent  the  contracting 
of  debts,  —  in  other  words,  had  none  of  the  prerogatives  of  a  principal 
in  the  management  and  control  of  the  business.     5  Dutcher,  272.  .  .   . 

My  citation  of  authorities  has  been  made  with  a  view  of  showing 
that  a  right  to  receive  a  share  of  the  profits  of  a  business  does  not 
furnish  an  invariable  test  of  a  partnership,  even  as  to  creditors ;  that 
a  person  not  actually  engaged  in  the  business  as  a  principal,  and  not 
holding  himself  out  as  a  partner,  cannot  be  held  for  debts  contracted  in 
the  business  as  a  dormant  partner,  unless  in  virtue  of  some  contract, 
express  or  implied,  on  his  part  in  legal  effect  creating,  as  between  him 
and  the  persons  actually  carrying  on  the  business,  the  relation  of 
principal  and  agent.  .  .  . 

The  decisions  germane  to  the  particular  case  now  before  the  court 
have  gone  upon  the  same  principle.  As  a  general  rule  the  death  of 
one  partner  works  a  dissolution  of  the  partnership.  If  an  executor 
engages  in  business,  either  as  a  sole  trader  or  in  a  partnership,  with 
the  testator's  assets,  though  he  does  it  as  executor,  and  not  for  his 
individual  benefit,  he  will  be  personalby  liable  for  the  debts  incurred  in 
the  business,  and  this  although  he  does  so  in  compliance  with  directions 


§  3.]  TEST   OF   INTENTION.  79 

in  the  testator's  will  or  in  conformity  with  articles  of  partnership  to 
which  the  testator  was  a  party  which  provide  that  on  the  death  of  a 
partner  his  executor  or  personal  representative  shall  be  admitted  into 
the  firm.  Wightman  v.  Towuroe,  1  M.  &  S.  412;  Labouchere  v. 
Tapper,  11  Moore  P.  C.  198,  221 ;  Laible  v.  Ferry,  5  Stew.  Eq.  791 ; 
2  Lind.  on  Part.  1060,  1061  ;  Story  on  Part.  §70. 

A  provision  in  articles  of  partnership  that  on  the  death  of  a  partner 
his  executor  or  personal  representative,  or  some  other  person  shall  be 
entitled  to  the  place  of  a  deceased  partner  in  the  firm,  with  the  capital 
of  the  deceased  in  the  firm  business,  or  some  part  of  it,  is  binding  upon 
the  surviving  partner  to  admit  the  executor,  personal  representative,  or 
nominee  of  the  deceased  partner,  but  does  not  bind  the  latter  to  eoine 
in.  They  have  an  option  to  come  in  or  not,  and  a  reasonable  time  in 
which  to  elect.  Pigott  y.  Bagley,  1  McC.  &  Y.  569;  Mad-wick  v. 
Wimble,  6  Beav.  495;  Downs  v.  Collins,  6  Hare,  418;  2  Lind.  on 
Part.  852.  An  executor  or  nominee  of  a  deceased  partner  coming  in 
under  such  a  provision  of  partnership  articles  comes  in  as  a  partner, 
and  consequently  becomes  personally  liable  for  debts  contracted  in  the 
business.  He  is  made  personally  liable  for  debts  for  the  reason  that 
he  has  of  his  own  volition  engaged  in  the  business  as  a  principal,  and 
is  a  contracting  party.  As  was  said  by  Lord  Eldon  in  Exparte  Gar- 
land, 10  Ves.  119,  "He  places  himself  in  that  situation  by  his  own 
choice,  judging  for  himself  whether  it  is  fit  and  safe  to  enter  into  that 
situation  and  contract  that  sort  of  liability ;  "  and  if  he  has  acted  in 
compliance  with  the  testator's  directions,  he  will  be  entitled  to  indem- 
nity out  of  the  testator's  estate  to  the  extent  of  the  fund  which  the 
testator  has  embarked  in  the  business,  and  no  further.  Ex  parte 
Garland,  10  Ves.  109  ;  In  re  Johnson,  15  Ch.  Div.  548  ;  Laible  v. 
Ferry,  5  Stew.  Eq.  791 ;  Burwell  v.  Mandeville's  Ex'rs,  2  How. 
(U.  S.)  560. 

On  the  other  hand,  a  stipulation  in  partnership  articles,  that  upon  the 
death  of  a  partner  his  capital  shall  remain  in  the  business  until  the 
expiration  of  the  prescribed  term  of  the  partnership,  is  binding  as  well 
upon  the  estate  of  the  deceased  as  upon  the  surviving  partner.  Schole- 
field  v.  Eichelberger,  7  Pet  586;  Burwell  v.  Mandeville's  Ex'rs,  2 
How.  (U.  S.)  560;  Downs  v.  Collins,  6  Hare,  418,  437;  Story  on 
Part.  §  261  <i.  Where  the  provision  in  the  partnership  article  is 
pimply  that  the  deceased  partner's  capital  shall  remain  in  the  business, 
the  executor  is  not  admitted  into  the  management  of  the  business. 
The  control  of  the  business  is  with  the  surviving  partner.  The  exec- 
utor cannot  withdraw  the  capital  of  the  deceased  partner  without 
subjecting  the  estate  to  liability  to  suit,  nor  can  he  exercise  the  control 
of  a  partner  in  the  conduct  of  the  business.  In  this  situation  none  of 
the  reasons  for  the  liability  of  a  partner  exist  as  against  him.  I  Luce 
it  is  that  when  by  the  articles  of  partnership  a  new  member  is  brought 
into  a  firm  on  the  death  of  a  partner,  as  an  executor  or  trustee,  linn 
creditors,  becoming  such  after  I  he  partner's  death,  have  the  personal 


80  PARTNERSHIP   AS   TO   THIRD    PERSONS.  [CHAP.  II. 

liability  of  the  admitted  member  of  the  firm  ;  but  where  by  the  articles 
the  capital  only  of  the  deceased  partner  is  continued  in  the  firm  without 
any  person  being  added,  such  creditors  have  only  the  liability  of  the 
surviving  partner,  by  whom  the  business  is  carried  on,  and  the  security 
of  that  part  of  the  estate  of  the  deceased  partner  which  is  left  in  the 
business.  Parsons  on  Part.  454.  Holme  v.  Hammond,  L.  R.  7 
Exch.  218,  is  a  case  exactly  in  point.   .   .   . 

The  cases  in  which  the  precise  question  has  been  raised  which  this 
bill  of  exceptions  raises  are  few.  The  cases  cited  b}'  the  plaintiff  in 
error  from  the  English  and  American  courts  are  those  in  which  the 
personal  liability  of  an  executor  voluntarily  engaging  in  business  with 
his  testator's  assets  has  been  adjudged,  or  the  extent  of  the  right  of 
partnership  creditors  to  charge  the  estate  of  a  deceased  partner  for 
debts  contracted  after  his  death  has  been  involved.  Wightman  v. 
Townroe  ;  Labouchere  v.  Tupper ;  Ex  parte  Garland;  Edgars.  Cooke, 
4  Ala.  n.  s.  588  ;  Thompson  v.  Brown,  4  Johns.  Ch.  619 ;  Stan- 
wood  v.  Owen,  14  Gray,  195,  are  cases  of  this  class.  The  only  cases 
in  American  courts  presenting  directly  the  question  raised  in  this  case 
that  have  come  under  my  observation  are  Owens  v.  Mackall,  33  Md. 
382,  and  Ritcher  v.  Poppenhuysen,  39  How.  Pr.  83,  and  both  of  these 
decisions  are  with  the  defendants  in  error. 

Nor  did  the  defendants  become  partners  in  the  business  by  reason 
of  their  examination  into  the  affairs  of  the  firm.  This  was  a  duty  they 
performed  in  the  execution  of  the  trust  arising  out  of  their  executor- 
ship. Nor  are  the  rights  of  the  creditors  of  the  deceased  partner,  to 
have  the  estate  of  the  testator  settled  up,  and  their  debts  paid,  at  all 
involved  in  the  controvers}-.  When  the  contingency  arises  upon  which 
the  payment  of  the  testator's  debts  is  involved,  a  court  of  equity  will  be 
competent  to  afford  them  adequate  relief  against  tying  up  the  estate  of 
the  testator  to  the  prejudice  of  his  creditors. 

Upon  the  case  presented  we  think  that  the  decision  of  the  judge  that 
the  defendants  in  error  were  not  liable  was  correct  and  the  judgment 
should  be  affirmed. 

All  concur. 


MEEHAN  v.   VALENTINE. 

145  U.  S.  611.     1S92. 

This  was  an  action  of  assumpsit  brought  by  Thomas  J.  Meehan, 
a  citizen  of  Maryland,  against  John  K.  Valentine,  executor  of  William 
G.  Perry,  both  citizens  of  Pennsylvania,  alleging  Perry  to  have  been 
a  partner  with  Lawrence  W.  Counselman  and  Albert  L.  Scott,  under 
the  name  of  L.  W.  Counselman  &  Co.,  and  counting  on  promissory 
notes  of  various  dates  from  August  10,  1883,  to  November  25,  1884, 
signed  by  that  firm,  indorsed  to  the  plaintiff,  and  amounting  in  all  to 


§  3.]  TEST    OF   INTENTION.  81 

about  $10,000,  with  interest.     The  defendant  denied  that  Perry  was 
a  partner  in  the  firm. 

At  the  trial  the  plaintiff'  put  in  evidence  the  following  agreement : 

"  L.  W.  Counselman,  Albert  L.  Scott.  Baltimore,  Bid.,  March 
15,  1880.  For  and  in  consideration  of  loans  made  and  to  be  made 
to  us  by  Win.  G.  Perry,  of  Philadelphia,  amounting  in  all  to  the  sum 
of  810,000,  for  the  term  of  one  year  from  the  date  of  said  loans,  we 
agree  to  pay  to  said  Wm.  G.  Perry,  in  addition  to  the  interest  thereon, 
one-tenth  of  the  net  profits  over  and  above  the  sum  of  §10,000  on 
our  business  for  the  year  commencing  May  1,  1880,  and  ending  May 
1,  1881  ;  i.  e.,  if  our  net  profits  for  said  year's  business  exceed  the 
sum  of  810,000,  then  we  are  to  pa}'  to  said  W.  G.  Perry  one-tenth 
of  said  excess  of  profits  over  and  above  the  said  sum  of  810,000  ;  and 
it  is  further  agreed  that  if  our  net  profits  do  not  exceed  the  sum 
of  $10,000,  then  he  is  not  to  be  paid  more  than  the  interest  on 
said  loan,  the  same  being  added  to  notes  at  the  time  they  are  given, 
which  are  to  date  from  the  time  of  said  loans,  and  payable  one  year 
from  date.     L.  W.  Counselman  &  Co." 

This  was  renewed  from  year  to  year — the  last  renewal  being  dated 
March  15,  1884.  The  renewal  of  March  18,  1882,  was  as  follows: 
"  We  hereby  renew  the  agreement  made  with  you  May  1,  1880,  which 
is  to  the  effect  that  we  will  guarantee  3'ou  ten  per  cent  interest  upon 
loans  amounting  to  810,000,  and  that  if  the  net  profits  of  our  business 
are  over  810,000  for  the  year  commencing  May  1,  1882,  and  ending 
April  30,  1883,  we  will  in  lieu  of  the  ten  per  cent  interest  give  you  ten 
percent  of  the  profits.  We  have  two  propositions  for  partnership  May 
1,  and  if  we  accept  either  we  will  then,  if  you  desire,  return  your  loan." 

The  plaintiff  also  called  Scott  as  a  witness,  who  testified  that  the  firm 
was  composed  of  L.  W.  Counselman  and  himself;  that  it  was  engaged 
in  "  the  fruit  and  vegetable  packing  and  oyster  business  "  in  Baltimore  ; 
that  Perry  was  in  the  stationei-y  business  in  Philadelphia ;  that  the 
810,000  mentioned  in  the  agreement  was  paid  by  him  to  the  firm, 
receiving  their  notes  for  it,  and  remained  in  the  business  throughout, 
no  part  of  it  having  been  repaid  ;  that  from  time  to  time  he  lent  other 
sums  to  the  firm,  which  were  repaid ;  that  he  was  an  intimate  friend 
of  the  witness,  and  visited  him  every  few  weeks ;  that  these  visits  were 
not  specially  connected  with  the  business,  though  on  such  occasions 
Perry  i4  usually  went  down  to  the  place  of  business  and  talked  busi- 
ness ; "  that  he  usually  asked  and  received  from  the  firm  accounts 
of  profit  and  loss  ;  that  the  accounts  showed  an  annual  profit,  which 
varied  from  year  to  year,  amounting  for  the  second  year  to  811.000 
or  812,000;  that  it  being  then  found  difficult  to  tell  at  the  end  of 
the  year  exactly  what  the  profits  would  be,  it  was  agreed  with  Perry 
that  he  should  thenceforth  receive  81,000  each  year,  leaving  the  final 
settlement  until  the  whole  business  was  settled  op,  and  that  he  re- 
ceived under  the  agreement  about  81,500  the  first  year  and  $1,000 
each  subsequent  year.     On  cross-examination  the  witness  Btated  that 

o 


^ 


82  PARTNERSHIP   AS    TO    THIRD    PERSONS.  [CHAP.  II. 

/  the  firm  made  an  assignment  to  the  plaintiff  for  the  benefit  of  creditors 
on  April  30,  1885  ;  that  their  liabilities  were  from  $60,000  to  $70,000, 
about  half  of  which  was  with  collateral  security,  and  he  did  not  know 
whether  it  had  been  paid  out  of  such  security ;  that  the  assets 
realized  less  than  $2,000;  that,  so  far  as  he  knew,  no  dividend 
had  been  paid,  and  in  regard  to  the  $10,000  received  from  Perry, 
the  witness  testified  as  follows:  "Question.  Mr.  Counselman  and 
yourself  did  owe  this  $10,000  to  the  estate  of  Mr.  Perry,  did  you? 
Answer.  They  had  my  notes  for  it.  Q.  Did  you  or  did  you  not  owe 
it?  A.  It  was  capital  he  had  in  the  business  the  same  as  ours.  We 
owed  it  to  him.     Of  course  we  owed  it  to  him  if  we  did  not  lose  it." 

At  the  close  of  the  plaintiff's  evidence  the  defendant  moved  for 
a  nonsuit,  on  the  ground  that  there  was  no  evidence  to  show  that 
Perry  was  liable  as  a  partner.  The  court  so  ruled,  and  ordered  a 
nonsuit.  29  Fed.  Rep.  276.  The  plaintiff  duly  excepted  to  the  ruling 
and  sued  out  this  writ  of  error. 

/S.  Shellabarger  and  J.  M.  Wilson,  for  plaintiff  in  error. 

Samuel  Dickson  and  H.  C.  Dale,  for  defendant  in  error. 

Gray,  J.  .  .  .  The  real  question  in  this  case  is  whether  the  evi- 
dence introduced  by  the  plaintiff  would  have  been  sufficient  to  sustain 
a  verdict  in  his  favor.   .  .  . 

How  far  sharing  in  the  profits  of  a  partnership  shall  make  one  liable 
as  partner  has  been  a  subject  of  much  judicial  discussion,  and  the 
various  definitions  have  been  approximate  rather  than  exhaustive. 

The  rule  formerly  laid  down,  and  long  acted  on  as  established,  was 
that  a  man  who  received  a  certain  share  of  the  profits  as  profits, 
with  a  lien  on  the  whole  profits  as  securit}7  for  his  share,  was  liable 
as  a  partner  for  the  debts  of  the  partnership,  even  if  it  had  been 
stipulated  between  him  and  his  co-partners  that  he  should  not  be 
so  liable  ;  but  that  mereby  receiving  compensation  for  labor  or  services, 
estimated  by  a  certain  proportion  of  the  profits,  did  not  render  one 
liable  as  a  partner.  Story,  Partn.  chap.  4  ;  8  Kent,  Com.  25  note, 
32-34  ;  Ex  parte  Hamper,  above  cited  ;  Pott  v.  Eyton,  3  C.  B.  32, 
40;  Bostwick  v.  Champion,  11  Wend.  571;  18  Id.  175,  184,  185; 
Burckle  v.  Eckart,  1  Den.  337;  3  N.  Y.  132;  Denny  v.  Cabot,  6 
Mete.  (Mass.)  82  ;  Fitch  v.  Harrington,  13  Gray,  468,  474  ;  Brundred 
v.  Muzzy,  25  N.  J.  Law,  268,  279,  674.  The  test  was  often  stated 
to  be  whether  the  person  sought  to  be  charged  as  a  partner  took 
part  of  the  profits  as  a  principal,  or  onhy  as  an  agent.  Benjamin 
v.  Porteus,  2  H.  Bl.  590,  592  ;  Coll.  Partn.  (1st  ed.)  14  ;  Smith,  Merc. 
Law  (1st  ed.),  4;  Story,  Partn.  §  55;  Loomis  v.  Marshall,  12  Conn. 
69,  78;  Burckle  v.  Eckart,  1  Den.  337,  341;  Hallet  v.  Desban,  14 
La.  Ann.  529. 

Accordingly,  this  court,  at  December  Term,  1860,  decided  that 
a  person  employed  to  sell  goods  under  an  agreement  that  he  should 
receive  half  the  profits,  and  that  they  should  not  be  less  than  a  certain 
sum,  was  not   a  partner  with  his  employer.     "Actual  participation 


S3.]  TEST   OF   INTENTION.  83 

in  the  profits  as  principal,"  said  Mr.  Justice  Clifford  in  delivering 
judgment,  •'  creates  a  partnership  as  between  the  parties  and  third 
persons,  whatever  may  be  their  intentions  in  that  behalf,  and  not- 
withstanding the  dormant  partner  was  not  expected  to  participate 
in  the  loss  beyond  the  amount  of  the  profits,"  or  "  may  have  expressly 
stipulated  with  his  associates  against  all  the  usual  incidents  to  that 
relation.  That  rule  however  has  no  application  whatever  to  a  case 
of  service  or  special  agency,  where  the  employee  has  no  power  as 
a  partner  in  the  firm,  and  no  interest  in  the  profits  as  property, 
but  is  simply  employed  as  a  servant  or  special  agent,  and  is  to 
receive  a  givgrrisum/oii*  of  Mm  pro^tg^orjt  proportion  of  the  same,  as 
a-rrjm~pensatronjQiLJiift  services."  Berthold  v.  Uoldauillli,  24  ITowT 
536,  542,  543.  See  also  Seymour  v.  Freer,  8  Wall.  202,  215,  222-226  ; 
Beckwith  v.  Talbot,  95  U.  S.  289,  293;  Edwards  v.  Tracy,  G3  Pa. 
St.  374  ;  Burnett  v.  Snyder,  81  N.  Y.  550,  555.  (After  quoting  from 
§§  1,  38,  and  49  of  Story  on  Partnership,  and  referring  to  Cox  v. 
Hickman,  8  H.  L.  C.  268,  the  learned  judge  continued.)  The  decision 
was  put  upon  the  ground  that  the  liability  of  one  partner  for  the  aeis 
of  his  co-partner  is  in  truth  the  liability  of  a  principal  for  the  acts  of 
his  agent;  that  a  right  to  participate  in  the  profits,  though  cogent, 
is  not  conclusive,  evidence  that  the  business  is  carried  on  in  part 
for  the  person  receiving  them,  and  that  the  test  of  his  liability  as 
a  partner  is  whether  he  has  authorized  the  managers  of  the  business 
to  carry  it  on  in  his  behalf.  Cox  v.  Hickman,  8  II.  L.  C.  268,  304,  306, 
312,  413,  nom.  Wheatcroft  v.  Hickman,  9  C.  B.  n.  s.47,  90,  92,  98,  99. 

This  new  form  of  stating  the  general  rule  did  not  at  first  prove 
easier  of  application  than  the  old  one,  for  in  the  first  case  which  arose 
afterward  one  judge  of  three  dissented  (Kilshaw  y.  Jukes,  3  Best  & 
S.  847),  and  in  the  next  case  the  unanimous  judgment  of  four  judges 
in  the  Common   Bench  was  reversed  by  four  judges  against  two  in 
the  Exchequer  Chamber.     Bullen  v.  Sharp,  18  C.  B.   n.   s.   614;    L. 
R.  1  C.  P.  86.     And  as  has  been  pointed  out  in  later  English  cases, 
the  reference  to  agency  as  a  test  of  partnership  was  unfortunate  and 
inconclusive,  inasmuch  as  agency  results  from  partnership  rather  than 
partnership  from  agency.     Kelly,  C.  B.,  and  Cleasby,  B.,  in  Holme  v. 
Hammond,  L.  R.  7  Exch.  218,  227,  233;  Jessel,  M.   R.,  in  Pooley  v. 
Driver,  5  Ch.  Div.  458,  476.     Such  a  test  seems  to  give  a  synonym, 
rather   than    a   definition,    another    name    for   the     conclusion    rather 
than  a  statement   of  the    premises   from   which  the  conclusion  is  to 
be  drawn.     To  sa\'  that  a  person  is  liable  as  a  partner,  who  stands  in 
the  relation  of  principal  to  those  by  whom  the  business  is   actually 
carried  on,   adds  nothing  by   way   of   precision,    for  the  very   idea  of 
partnership  includes  the   relation   of  principal  and   agent. 

In  the  case  last  above  cited  Sir  George  Jessel  said:  "  You  cannot 
grasp  the  notion  of  agency,  properly  speaking,  unless  you  grasp  the 
notion  of  the  existence  of  the  firm  as  a  separate  entity  from  the  existence 
of  the  partners,  a  notion  which  was  well  grasped  by  the  old   Roman 


84  PARTNERSHIP   AS   TO    THIRD    PERSONS.  [CHAP.  IL 

lawyers,  and  which  was  partly  understood  in  the  courts  of  equity." 
And  in  a  very  recent  case  the  Court  of  Appeals  of  New  York,  than 
which  no  court  has  more  steadfastly  adhered  to  the  old  form  of  stating 
the  rule,  has  held  that  a  partnership,  though  not  strictly  a  legal  entity 
as  distinct  from  the  persons  composing  it,  yet  being  commonly  so  re- 
garded b}'  men  of  business,  might  be  so  treated  in  interpreting  a  com- 
mercial contract.     Bank  v.  Thompson,  121  N.  Y.  280. 

In  other  respects  however  the  rule  laid  down  in  Cox  v.  Hickman  has 
been  unhesitatingly  accepted  in  England,  as  explaining  and  modifying 
the  earlier  rule.  In  re  English  &  Irish  Society,  1  Hem.  &  M.  85,  106, 
107 ;  Mollwo  y.  Court  of  Wards,  L.  R.  4  P.  C.  419,  435  ;  Ross  v. 
Parkyns,  L.  R.  20  Eq.  331,  335  ;  Ex  parte  Tennant,  6  Ch.  Div.  303  ; 
Ex  parte  Delhasse,  7  Id.  511  ;  Badeley  v.  Bank,  38  Id.  238.  See  also 
Davis  v.  Patrick,  122  U.  S.  138,  151  ;  Eastman  v.  Clark,  53  N.  H.  276  ; 
Wild  v.  Davenport,  48  N.  J.  Law,  129  ;  Seaburyr.  Bolles,  51  Id.  103; 
52  Id.  413 ;  Morgan  v.  Farrel,  58  Conn.  413. 

In  the  present  state  of  the  law  upon  this  subject  it  ma}'  perhaps  be 
doubted  whether  any  more  precise  general  rule  can  be  laid  down  than, 
as  indicated  at  the  beginning  of  this  opinion,  that  those  persons  are 
partners  who  contribute  either  property  or  services  to  carry  on  a  joint 
business  for  their  common  benefit,  and  who  own  and  share  the  profits 
thereof  in  certain  proportions.  If  they  do  this  the  incidents  or  conse- 
quences follow  that  the  acts  of  one  in  conducting  the  partnership  busi- 
ness are  the  acts  of  all ;  that  each  is  agent  for  the  firm  and  for  the  other 
partners ;  that  each  receives  part  of  the  profits  as  profits,  and  takes 
part  of  the  fund  to  which  the  creditors  of  the  partnership  have  a  right  to 
look  for  the  payment  of  their  debts  ;  that  all  are  liable  as  partners  upon 
contracts  made  by  any  of  them  with  third  persons  within  the  scope  of  the 
partnership  business,  and  that  even  an  express  stipulation  between 
them  that  one  shall  not  be  so  liable,  though  good  between  them- 
selves, is  ineffectual  as  against  third  persons.  And  participating  in 
profits  is  presumptive  but  not  conclusive  evidence  of  partnership. 

In  whatever  form  the  rule  is  expressed,  it  is  universally  held  that  an 
agent  or  servant,  whose  compensation  is  measured  by  a  certain  propor- 
tion of  the  profits  of  the  partnership  business,  is  not  thereby  made  a 
partner  in  any  sense.  So  an  agreement  that  the  lessor  of  an  hotel  shall 
receive  a  certain  portion  of  the  profits  thereof  by  way  of  rent  does  not 
make  him  a  partner  with  the  lessee.  Perrine  v.  Hankinson,  UN.  J. 
Law,  181  ;  Holmes  v.  Railroad  Co.,  5  Gray,  58  ;  Beecher  v.  Bush,  45 
Mich.  188.  And  it  is  now  equally  well  settled  that  the  receiving  of 
part  of  the  profits  of  a  commercial  partnership,  in  lieu  of  or  in  addition 
to  interest,  by  way  of  compensation  for  a  loan  of  money,  has  of  itself 
no  greater  effect.  Wilson  v.  Edmonds,  130  U.  S.  472,  482  ;  Richardson 
v.  Hughitt,  76  N.  Y.  55  ;  Curry  v.  Fowler,  87  Id.  33 ;  Cassidy  v.  Hall, 
97  Id.  159  j  Smith  v.  Knight,  71  111.  148  ;  Williams  v.  Soutter,  7  Iowa, 
435,446;  Smelting  Co.  v.  Smith,  13  R.  I.  27;  Mollwo  v.  Court  of 
Wards,  and  Badeley  v.  Bank,  above  cited. 


S  ° 


]  TEST    OF   INTENTION.  85 


In  some  of  the  cases  most  relied  on  by  the  plaintiff,  the  person  held 
liable  as  a  partner  furnished  the  whole  capital  on  which  the  business 
was  carried  on  by  another,  or  else  contributed  part  of  the  capital  and 
took  an  active  part  in  the  management  of  the  business.  Beauregard  v. 
Case,  91  U.  S.  134;  Hackett  w.  Stanley.  115  X.  Y.  625,627,  628,  G33  ; 
Pratt  v.  Xangdon,  12  Allen,  544;  97  Mass.  97;  Rowland  w.  Long,  45 
Md.  439.  And  in  Mollwo  v.  Court  of  Wards,  above  cited,  after  speak- 
ing of  a  contract  of  loan  and  security,  in  which  no  partnership  was  in- 
tended, it  was  justly  observed:  "  If  cases  should  occur  where  any  per- 
sons, under  the  guise  of  such  an  arrangement,  are  really  trading  as 
principals,  and  putting  forward,  as  ostensible  traders,  others  who  are 
really  their  agents,  they  must  not  hope  by  such  devices  to  escape 
liability,  for  the  law,  in  cases  of  this  kind,  will  look  at  the  body  and 
substance  of  the  arrangements,  and  fasten  responsibility  on  the  parties 
according  to  their  true  and  real  character."  L.  R.  4  C.  P.  438.  But 
in  the  case  at  bar  no  such  element  is  found. 

Throughout  the  original  agreement  and  the  renewals  thereof,  the  sum 
of  810,000  paid  by  Perry  to  the  partnership,  and  for  which  they  gave 
him  their  promissory  notes,  is  spoken  of  as  a  loan,  for  which  the  part- 
nership was  to  pay  him  legal  interest  at  all  events,  and  also  pay  him 
one-tenth  of  the  net  yearly  profits  of  the  partnership  business,  if  those 
profits  should  exceed  the  sum  of  $10,000.  The  manifest  intention  of 
the  parties,  as  apparent  upon  the  face  of  the  agreements,  was  to  create 
the  relation  of  debtor  and  creditor,  and  not  that  of  partners.  Perry's 
demanding  and  receiving  accounts  and  payments  yearly  was  in  accor- 
dance with  his  right  as  a  creditor.  There  is  nothing  in  the  agreement 
itself,  or  in  the  conduct  of  the  parties,  to  show  that  he  assumed  any 
other  relation.  He  never  exercised  any  control  over  the  business.  The 
legal  effect  of  the  instrument  could  not  be  controlled  by  the  testimony 
of  one  of  the  partners  to  his  opinion  that  "  it  was  capital  he  had  in  the 
business  the  same  as  ours  ;  we  owed  it  to  him  ;  of  course  we  owed  it 
to  him  if  we  did  not  lose  it." 

Upon  the  whole  evidence  a  jury  would  not  be  justified  in  inferring, 
on  the  part  of  Perry,  either  "  actual  participation  in  the  profits  as  prin- 
cipal," within  the  rule  as  laid  down  by  this  court  in  Berthold  v.  Gold- 
smith, or  that  he  authorized  the  business  to  be  carried  on  in  part  for 
him  or  on  his  behalf,  within  the  rule  as  stated  in  Cox  v.  Hickman  and 
the  later  English  cases.  There  being  no  partnership  in  any  sense,  and 
Perry  never  having  held  himself  out  as  partner  to  the  plaintiff  or  to 
those  under  whom  he  claimed,  the  Circuit  Court  rightly  ruled  that  the 
action  could  not  be  maintained.  Pleasants  v.  Fant,  22  Wall.  116; 
Thompson  v.  Bank,  111  U.  S.  529. 

Judgment  <<j}ir/>i<<Ll 

i  In  Thillman  v.  P.entrm,  R2  Md.  64  :  33  At.  4*5  (189.r>).  it  is  Raid :  "  It  may  be  true 

that  a  participation  in  tin-  profits  <.f  a  business  Btanding  al< unless  explained,  lead 

to  the  conclusion  that  the  business  was  carried  <>n  fur  the  mutual  benefit  and  the  joint 
authority  of  all  the  parties  participating  in  such  profits.     But  when  the  participation 


86  PARTNERSHIP    AS    TO    THIRD    PERSONS.  [CHAP.  II. 


MERRALL   v.    DOBBINS. 

169  Pa.  St.  480 :  32  At.  578.     1895. 

Fell,  J.  The  question  raised  by  the  case  stated  is  whether 
Richard  J.  Dobbins  and  Hugh  F.  Griffin  were  partners  as  to  third 
parties  in  conducting  the  business  of  the  Rowland  Hotel  at  Long  Branch 
in  1892.  Their  relation  is  to  be  determined  entirely  by  the  agreement 
into  which  they  entered,  as  no  facts  outside  of  it  are  stated.  By  the 
first  three  clauses  of  the  agreement,  Dobbins  leased  the  Howland 
Hotel,  together  with  all  the  personal  property  on  the  premises,  for 
three  months,  to  Griffin  for  $20,000,  payable  in  four  equal  instalments. 
Thus  far,  the  agreement  is  a  lease;  but,  at  this  point,  in  form,  sub- 
stance, and  apparent  intent,  the  similitude  ceases.  The  additional 
provisions,  inconsistent  with  the  relation  of  lessor  and  lessee,  which 
indicate  a  joint  interest  between  the  parties,  as  owners  of  the  business, 
are,  in  their  order,  as  follows  :  (1)  That  Griffin  shall  give  his  undivided 
attention,  and  devote  his  best  energies,  to  the  promotion  of  the  busi- 
ness to  be  done  on  the  said  premises  ;  (2)  that  Dobbins  or  his  repre- 
sentatives shall  have  the  right  of  free  access  to  the  premises  at  all 
times;  (3)  that,  in  addition  to  the  sum  of  $20,000,  Dobbins  shall  have 
80  per  cent  of  the  net  profits  derived  from  all  of  the  business  done 
on  the  premises  ;  (4)  that,  in  addition  to  the  current  expenses  of  the 
hotel,  and  the  business  done  therein,  there  shall  be  charged  to  the 
expense  account  the  cost  of  insurance,  water  and  sewer  rents,  license 
fee,  interior  repairs,  and  the  salary  of  a  person,  to  be  designated  by 
Dobbins,  who  shall  keep  the  books,  and   act  as  cashier,  receive  all 

in  profits  arises  from  a  particular  clause  in  an  agreement  between  the  parties,  before 
you  can  justly  say  that  such  participation  is  prima  facie  evidence  of  a  partnership,  it 
will  be  necessary  to  look  not  only  to  that  clause,  but  all  other  clauses  in  the  contract, 
and  then  determine  whether  the  contract,  taken  as  a  whole,  justifies  the  conclusion 
that  there  is  a  partnership ;  that  is,  whether  there  is  a  joint  business  carried  on  in 
behalf  of  all  the  parties,  or  whether  the  trausaction  is  one  of  loan  between  debtor  and 
creditor,  the  loan  or  interest  on  the  loan  to  be  paid  by  an  amount  equal  to  a  certain 
share  in  the  profits.  And,  looking  to  this  agreement  as  a  whole,  it  cannot,  it  seems  to 
us,  be  considered  as  a  contract  of  partnership,  to  be  carried  on  jointly  for  the  benefit 
of  all  the  parties  to  the  agreement  ;  that  is,  a  business  in  which  all  the  parties  are 
principals,  with  authority  to  bind  each  other  by  obligations  entered  into  according  to 
the  ordinary  usages  of  trade.  On  the  contrary,  by  every  fair  rule  of  construction  it  is 
an  agreement  by  which  the  defendant  was  to  loan  to  the  company  $2,000  additional, 
and  to  be  paid  for  the  use  of  the  money  an  amount  equal  to  a  certain  proportion  of  the 
net  profits.  .  .  .  Outside  of  this  agreement,  there  is  no  evidence  whatever  to  charge 
the  defendant  as  partner.  He  did,  it  is  true,  now  and  then  examine  the  books  of  the 
company,  and  gave  his  views  as  to  the  manner  in  which  the  business  ought  to  be 
conducted,  and  in  conversations  with  Von  Hafften  and  Gailey,  the  members  of  the 
firm,  spoke  of  the  business  as  "  our  business,"  and,  when  the  company  got  into  difficul- 
ties, he  refused  to  advance  any  more  money,  preferring,  as  he  said,  to  bear  his  share 
of  the  losses,  rather  than  put  more  money  in  the  concern.  All  these  acts  were  consis- 
tent with  his  relation  as  a  creditor  of  the  company,  for  upon  the  successful  management 
of  the  company  depended  the  payment  by  it  of  the  $2,000  loaned,  and  the  payment  of 
part  of  the  net  profits  for  the  use  of  the  money." 


§  3.]  TEST   OF   INTENTION.  87 

inouey,  deposit  it  in  bis  own  name,  and  make  all  payments  ;  (.">)  that, 
at  the  termination  of  the  agreement,  a  statement  shall  be  made  of  the 
business  done,  and  that  Griffin  shall  receive  20  per  cent  of  the  net 
profits;  (6)  that,  at  the  expiration  of  the  lease,  Dobbins  shall  pay  to 
Griffin  §1,000,  and  that  Dobbins  shall  have  the  right  at  any  time,  upon 
24  hours'  notice,  to  annul  the  agreement,  and  assume  sole  and  exclu- 
sive possession  of  the  property;  (7)  that  Griffin  shall  have  absolute 
control  and  management  of  the  business  during  the  continuance  of  the 
agreement,  and  assents  to  a  transfer  of  the  license  if  the  agreement 
shall  be  annulled.  This  agreement  is  called  by  the  parties  a  lease,  and 
it  provides  that  Dobbins  shall  not  be  liable  for  the  business  done  or  for 
the  debts  contracted  by  Griffin.  In  favor  of  construing  it  as  a  lease,  it 
may  be  said  that  its  unusual  provisions  are  explained  by  the  unusual 
character  and  use  of  the  property.  Valuable  real  estate  and  a  large 
amount  of  personal  property  were  being  used  for  a  business  that  was 
precarious.  The  season  was  short,  and  the  outcome  uncertain,  and 
dependent  upon  conditions  beyond  the  control  of  the  lessee.  To  ap- 
portion the  rent,  under  such  circumstances,  so  that  a  part  should  be 
fixed  and  certain,  and  a  part  conditional,  was  a  reasonable  and  not  un- 
usual business  arrangement,  and  the  provisions  were  to  ascertain  and 
secure  the  payment  of  the  conditional  rent.  This  construction,  how- 
ever, makes  a  new  agreement  for  the  parties.  It  assumed,  what  they 
do  not  say,  that  the  80  per  cent  of  the  net  profits  derived  from  the 
business  is  to  be  paid  as  additional  rent.  The  rent  named  is  820,000, 
and  this  amount  is  twice  named  as  the  total  rent.  The  80  per  cent  of 
the  net  profits  is  in  addition  to  the  rent.  It  cannot  be  considered  a 
part  thereof  without  disregarding  the  words  used,  and  giving  effect  to 
an  undisclosed  intention.  The  difficulties  in  the  way  of  considering  the 
agreement  a  lease  are  insuperable.  The  lessor  would  be  given  a  share 
of  the  profits,  not  a  sum  proportionate  to  a  share,  and  not  as  rent,  but 
directly  as  profits.  He  would  have  the  right  of  access  to  the  premises 
at  all  times  and  for  all  purposes  ;  to  appoint  a  bookkeeper  and  cashier, 
who  should  receive  all  moneys,  make  all  payments,  and  retain  posses- 
sion of  the  balance.  He  would  have  the  right  to  an  account,  and  was 
bound  to  pay  his  lessor  §1,000,  and  could  at  his  option,  with  or  with- 
out cause,  terminate  the  lease.  The  lessee  would  contract  for  the  ex- 
clusive control  of  his  own  business,  and  covenant  to  give  it  his  entire 
time  and  attention.  He  would  be  forbidden  to  keep  his  own  books  or 
to  touch  a  dollar  of  his  own  money.  He  could  neither  receive  nor  pay 
any  money  derived  from  his  business,  and  had  no  control  of  the  net 
balances.  He  gets  nothing  until  the  end,  when,  after  the  statement  of 
an  account,  he  is  to  receive  20  percent.  At  the  expiration  of  the 
term,  or  its  earlier  termination  at  the  will  of  the  lessor,  he  is  to  be  paid 
by  the  lessor  §1,000,  and  this,  in  any  event,  whether  there  are  profits 
or  not.  These  are  not  the  characteristics  of  a  lease,  but  of  a  partner- 
ship. The  business  to  be  carried  on  is  not  spoken  of  as  the  business 
of  Griffin,  except  in  the  single  instance  where  it  is  provided  that  "  the 


88  PARTNERSHIP   AS    TO    THIRD   PERSONS.  [CHAP.  IL 

part\T  of  the  first  part  shall  not  in  any  wise  be  liable  for  the  business 
done  by  th '  part}-  of  the  second  part."  In  all  other  parts  of  the  agree- 
ment it  is  spoken  of  or  referred  to  as  "  the  business  done  on  the  prem- 
ises." It  is  to  "the  business  done  on  the  premises"  that  Griffin  is 
to  give  his  whole  attention  ;  of  it  that  the  bookkeeper  is  to  take  charge, 
an  account  to  be  stated,  and  the  net  profits  ascertained  ;  and  from  it 
that  he  is  to  be  paid,  and  the  parties  to  receive,  the  one  80  per  cent 
and  the  other  20  per  cent.  The  business  of  which  the  agreement 
speaks,  and  of  which  an  account  is  to  be  kept,  a  statement  made,  and 
the  profits  divided,  is  the  business  of  a  distinct  entity,  —  a  partnership, 
—  in  which  the  parties  are  joint  owners,  and  in  which  they  share  as 
proprietors.  This  seems  to  be  the  only  fair  conclusion  to  be  drawn 
from  the  acts  of  the  parties. 

The  agreement  is  our  only  guide.  If  it  is  evidence  of  the  intention 
of  the  parties  to  become  joint  owners  of  the  business  to  be  carried  on, 
we  need  not  consider  whether  they  became  partners  against  their  will, 
by  operation  of  law.  We  are  not  concerned  with  the  question  whether 
the  law  of  the  State  by  which  the  contract  is  governed  is  in  harmony 
with  the  old  English  rule  of  Grace  v.  Smith,  2  W.  Bl.  998,  and  Waugh 
v.  Carver,  2  H.  Bl.  235,  which  makes  participation  in  the  profits  con- 
clusive of  the  liability  of  the  participant  to  creditors,  without  regard  to 
the  agreement  or  intention  of  the  parties,  or  with  the  modern  rule  of 
Cox  v.  Hickman,  8  H.  L.  C.  268,  under  which  a  participation  in  profits 
is  held  to  be  strong,  but  not  conclusive,  evidence  of  a  partnership,  and 
the  whole  transaction  is  taken  into  consideration  in  order  to  determine 
whether  the  relation  of  partners  was  to  be  created.  If  there  was  a 
partnership  resulting  from  intention,  all  other  questions  drop  out  of  the 
case. 

The  judgment  is  affirmed. 


CLIFTON  v.  HOWARD. 
89  Mo.  192.     1886. 

Henry,  C  J.  This  is  an  action  of  replevin  to  recover  of  defendant 
thirty-two  head  of  fat  cattle  taken  by  him  as  the  property  of  James  K. 
Estis  on  an  execution  against  Estis  in  favor  of  B.  S.  Walker.  The 
defence  was  that  plaintiff  in  this  case  and  Estis  had  fraudulently  con- 
spired to  cheat  and  defraud  the  creditors  of  Estis,  who  was  in  fact  the 
owner  of  the  property,  and  that  Clifton's  claim  was  made  in  furtherance 
of  said  fraudulent  scheme. 

The  evidence  tended  to  prove  that  plaintiff,  Clifton,  and  Estis,  botli 
residents  of  Morgan  County,  had  for  years  been  purchasing  and 
shipping  cattle  to  St.  Louis,  each  on  his  account  and  to  different  com- 
mission houses,  Clifton  to  Irons  &  Cassidy,  and  Estis  to  George  R. 


§  3.]  TEST   OF   INTENTION. 

Taylor  &  Company.  That  neither  was  using  his  own  capital.  That 
they  severally  hud  an  agreement  with  their  respective  commission  mer- 
chants, by  which  he  was  to  purchase  cattle  for  his  commission  mer 
chant,  and,  when  the  cattle  were  delivered  in  the  stock  yards  a 
Versailles  and  billed  lor  shipment  in  ears,  he  could  draw  a  sight  draft 
on  his  commission  merchant  lor  the  amount  paid  for  the  cattle,  he 
having  previously  paid  for  them  by  his  individual  checks  on  banks  at 
Versailles.  That  when  the  cattle  in  controversy  were  levied  upon  in 
the  stock  yards  at  Versailles  they  had  been  billed  by  Clifton  to  Irons 
&  Cassidy.  and  Clifton  had  drawn  a  sight  draft  on  them  in  favor  of 
a  bank  at  Versailles  for  the  amount  necessary  to  cover  his  checks  on 
said  bank  to  pay  for  the  cattle.  That  said  cattle  were  purchased  by 
Clifton  and  paid  for  by  his  individual  check  on  said  bank,  and  that 
Estis  had  no  interest  in  said  cattle,  except  under  the  following  arrange- 
ment made  by  and  between  him  and  Clifton,  about  two  years  before 
this  bunch  of  cattle  was  purchased,  viz.  :  In  order  to  avoid  conflict  and 
rivalry  between  them  in  the  cattle  trade  in  that  neighborhood,  it  was 
agreed  that  in  all  lots  of  cattle  bought  in  the  same  neighborhood,  and 
shipped  by  either,  the  other  should  have  half  the  profits,  if  any,  arising 
from  the  shipment,  and  should  pay  half  the  losses  of  such  shipment  and 
sale,  if  any,  and,  in  pursuance  of  said  arrangement,  they  often  assisted 
each  other  in  loading  stock  on  the  cars,  and  accompanied  each  other 
in  purchasing,  and  when  a  portion  of  the  cattle  in  controversy  were 
purchased,  Estis  was  present,  and  was  also  present  when  the  cattle 
were  seized  by  Howard,  the  sheriff.  That  when  either  went  out  of  his 
own  neighborhood  and  bought  cattle,  it  was  on  his  own  account,  ami 
the  other  did  not  share  in  the  profits  of  such  purchases.  That  between 
the  time  these  cattle  were  levied  upon,  and  the  date  at  which  they  were 
replevied  and  shipped,  cattle  declined  in  St.  Louis  forty  or  fifty  cents 
on  the  one  hundred  pounds.  The  demand  of  Walker  against  Estis 
was  the  individual  debt  of  Estis,  with  which  plaintiff  had  no  connection 
whatever,  and  was  contracted  long  before  Clifton  and  Estis  had  any 
business  connection  with  each  other.   .   .   . 

The  court  tried  the  cause  upon  the  theory,  as  indicated  by  the 
instructions  given  at  defendant's  instance,  and  the  refused  instructions 
of  plaintiff  that  a  mere  participation  in  the  profits  and  loss  of  the  ven- 
ture by  one  who  had  no  other  interest  in  the  property,  was  sufficient  to 
constitute  him  a  co-partner  of  the  other  party  in  the  property  itself. 
This  question  was  elaborately  considered  in  the  opinion  of  this  court, 
delivered  by  Judge  Napton,  in  the  case  of  Donnell  '•.  Harshe,  •',;  Mo. 
170,  and  the  conclusion  announced  was  "that  a  mere  participation  in 
profit  and  loss  does  not  necessarily  constitute  a  partnership."  This 
case  was  followed  in  that  of  Musser  v.  Brink,  58  Mo.  242,  and  again 
in  the  same  case  reported  in  80  Mo.  3o0  ;  Rapp  V.  Vogel,  45  Mo.  524, 
is  to  the  same  effect. 

Alfaror.  De  La  Torre,  decided  bvtlie  English  High  Court  of  Chancery, 
a  brief  synopsis  of  which  decision   will   lie   found    in    .".  C.   L.   J.   178, 


90  PARTNERSHIP   AS    TO    THIRD    PERSONS.  [CHAP.  II. 

seems  to  be  directly  in  point  on  the  question,  and  in  harm  on}-  with 
what  this  court  held  in  the  cases,  supra. 

In  Story  on  Partnership,  §  27,  the  learned  author  says:  "And 
accordingly  it  has  been  held,  at  the  common  law,  that  if  A.  is  owner 
of  goods,  and  agrees  with  B.  that  B.  shall  be  interested  in  a  particular 
portion  of  the  profit  and  loss  of  the  adventure,  or  voyage  abroad,  in 
which  the  goods  are  to  be  embarked,  such  an  agreement  will  not  alone 
make  A.  and  B.  partners  in  the  goods,  as  between  themselves,  but 
only  partners  in  the  profits."  As  to  persons  who  have  dealt  with  them 
as  partners  this  question  would  be  presented.  It  is  not  however  in 
this  record,  because  the  debt  for  which  the  cattle  were  seized,  was  con- 
tracted by  Estis,  on  his  own  account,  long  before  he  and  this  plaintiff 
had  formed  an}-  business  connection.  As  to  such  a  creditor,  his  debtor 
must  have  an  interest  not  only  in  the  profits  and  losses,  but  also  in 
the  property,  the  subject  of  the  speculation.  In  Alfaro  v.  De  La  Torre, 
supra,  the  ruling,  seems  to  have  been,  that  an  agreement  between  two 
persons  to  divide  the  profit  or  loss  upon  a  sale  of  goods,  which  are 
to  be  bought  and  paid  for  b}r  one  of  them,  does  not  create  a  joint 
property  in  the  goods. 

The  judgment  is  reversed  and  the  cause  remanded. 

All  concur.1 


CANTON  BRIDGE  CO.  v.  CITY   OF  EATON  RAPIDS. 

65  N.  W.  761  :  107  Mich.  — .  1S95. 

Hooker,  J.  To  determine  whether  persons  are  in  fact  partners, 
we  must  look  at  their  intention,  and  this  is  deducible  from  their  decla- 
ration as  to  their  intention,  and  the  agreements  that  they  make  regard- 

1  In  Walker  v.  Hirsch,  27  Ch.  D.  460  (1884),  Cotton,  L.  J.,  made  the  following  com- 
ments on  Pawsey  v.  Armstrong,  18  Ch.  I).  698  :  "  If  that  case  is  to  be  considered  as 
binding,  it  would  go  far  to  support  the  plaintiff's  contention,  because  then,  as  I 
understand,  Mr.  Justice  Kay  did  lay  down  that  if  there  was  an  agreement  to  share 
profits  and  losses,  whatever  the  intention  of  the  parties  as  expressed  in  the  agreement 
might  be,  that  of  necessity  imposed  upon  them  the  position  of  partners  with  the  con- 
sequential right  of  each  member  of  the  partnership  to  have  on  the  dissolution  a  share 
in  the  assets  and  the  profits  arising  upon  the  sale  of  the  assets.  In  my  opinion 
that  is  not  right  as  between  the  parties  themselves.  Whether  they  be  said  to  be 
partners  in  the  sense  of  sharing  profits,  or  anything  else,  you  must  look  for  the  rights 
which  they  have  as  between  themselves  to  the  fair  construction  of  the  contract." 

Lindley,  L.  J.,  said,  "  As  regards  the  case  of  Pawsey  v.  Armstrong,  I  have  not 
examined  it  with  care,  and  do  "not  wish,  therefore,  to  say  any  thing  about  it.  Persons 
who  share  profits  and  losses  are,  in  my  opinion,  properly  called  partners ;  but  that  is 
a  mere  question  of  words ;  their  precise  rights  in  any  particular  case  must  depend 
upon  the  real  nature  of  the  agreement  into  which  they  have  entered." 

In  Winter  v.  Pipher  et  al.,  64  N.  W.  (la.)  663  (1895),  it  is  said  :  "There  are  cases 
which  hold  that  a  community  of  interest  in  profits  is  sufficient  to  constitute  a  partner- 
ship. But  this  court  is  committed  to  the  doctrine  that  there  must  be  a  sharing  of  the 
losses." 


R  3.]  TEST   OF    INTENTION.  91 

ing  the  subject  matter;  and,  where  the  contract  under  which  the 
business  engagement  is  made  contains  the  express  or  implied  disavowal 
of  an  intention  to  assume  the  partnership  relation,  no  partnership  will 
be  found  to  exist,  unless  such  declaration  is  so  at  variance  and  so 
inconsistent  with  their  engagement  as  to  be  irreconcilable.  If  the 
actual  engagements  are  incompatible  with  the  expression  of  intention, 
the  latter  must  yield  to  the  former;  but,  where  they  can  be  reconciled, 
the  latter  must  govern.  Mr.  Justice  Cooley  says,  in  Beecher  v.  Bush, 
45  Mich.  193  :  'k  If  the  parties  intend  no  partnership,  the  courts  should 
give  effect  to  their  intent,  unless  some  one  has  been  deceived  by  their 
acting  or  assuming  to  act  as  partners;  and  any  such  case  must  stand 
upon  its  own  peculiar  facts,  and  upon  special  equities."  And  Chancellor 
Kent,  in  the  case  of  Post  v.  Kimberly,  9  Johns.  470,  after  admitting 
the  rule  that  expressed  intention  must  yield  to  actual  engagements, 
says :  "  But  every  doubtful  case  must  be  solved  in  favor  of  the  intent ; 
otherwise,  we  should  carry  the  doctrine  of  constructive  partnership  so 
far  as  to  render  it  a  trap  to  the  unwary."  We  see  no  reason  to  force 
partnership  relations  and  obligations  upon  parties  who  did  not  desire 
or  intend  to  assume  them,  especially  where  the  interests  or  rights  of 
third  parties  are  not  to  be  affected.  With  this  in  view,  we  will  examine 
the  contract  between  these  alleged  partners,  in  the  light  of  the  circum- 
stances surrounding  the  transaction. 

The  Canton  Bridge  Company  was  a  manufacturer  engaged  in  provid- 
ing material,  manufacturing  and  erecting  bridges,  from  iron,  having  an 
extensive  factory  at  Canton,   Ohio,  and.  doing  business  in  that  and 
other  States.     An  examination  of  the  written  contract  between   the 
plaintiff  and  Mr.  Wheaton  will  show  its  first  provision  to  be  a  recital  of 
the   fact  that  the  "  Canton  Bridge   Company  has  this  day  appointed 
K.  D.  Wheaton  its  agent  to  contract  for  bridges  and  general  iron  work, 
and  to  do  any  other  work  in  connection  with  the  general  business,  when 
directed,  in  several  States.     It  agrees  to  advance  all  money  necessary 
to  pay  all  general  expenses  incurred  in  said  business,  upon  detailed 
statements   of  account,    rendered    monthly."     Wheaton    promised    to 
devote  his  entire  time  and  ability  to  the  business,  in  consideration  of 
which  the  Canton  Bridge  Company  agreed  to  pay  to  Wheaton  one-half 
of  the  net  profits.     These  were  to   be  arrived    at   by  deducting   the 
expenses  from  the  contract  price  of  jobs,  the  balance  to  be  divided 
equally ;  losses,  if  any,  to  be  divided  in  the  same  way.     There  was  a 
further  agreement  that  the  company  should  buy  one-half  interest  in 
certain  tools  owned  by  a  firm,  then  existing,  of  R.  I).  Wheaton  &  <'<».. 
said  interest  belonging  to  one  Derst.     Under  this  contract  the  parties 
were  to  share  the  profits  and  losses,  but  the  Canton  Bridge  Company 
was  to  furnish  the  material  and  labor,  or  advance  the  necessary  funds 
to  pay  for  the  same.     There  is  nothing  to  indicate  that  Wheaton  was  to 
own  any  share  in  these  materials.     He  was  to  give  his  services,  and 
that  was  all  of  the  obligation  that  he  assumed.     The  contract  docs  not 
bind  him  to  put  a  dollar  into  the  common  enterprise.     These  things 


92  PARTNERSHIP   AS   TO    THIRD    PERSONS.  [CHAP.  II. 

being  true,  it  is  entirely  consistent  that  he  should  be  an  agent,  as  the 
contract  states,  and  that  he  should  be  "  paid  "  by  the  company  for  "  his 
services,"  and  that  his  salary  or  compensation  should  be  one-half  of  the 
profits.  Numerous  decisions  support  the  proposition  that  a  share  of 
the  profits  may  be  treated  as  compensation  merely.  See  authorities 
cited  in  the  opinion  of  Mr.  Justice  McGrath  in  Dutcher  v.  Buck,  96 
Mich.  163. 

Does  the  sole  remaining  fact,  viz.,  the  sharing  of  losses,  necessarily 
make  the  parties  partners,  against  the  express  agreement  that  Wheaton 
was  agent,  to  be  "  paid"  by  plaintiff  for  his  "  services,"  for  whatever 
labor  "  they  should  direct  him  to  perform  "  in  relation  to  their  property? 
It  would  seem  to  be  reasonable  to  conclude  that  the  provision  concern- 
ing losses  was  designed  to  induce  care  on  the  part  of  the  agent  in 
taking  contracts.  It  carried  his  interest  in  case  of  unprofitable  work  a 
little  beyond  the  line  of  the  mere  loss  of  profits,  and  no  reason  suggests 
itself  wiry  that  might  not  be  consistent  with  the  existence  of  an  agency, 
instead  of  a  partnership.  In  Beecher  v.  Bush,  45  Mich.  200,  numer- 
ous cases  are  cited  to  the  proposition  that  a  share  of  the  profits  may 
be  compensation  for  services.  Ordinarily,  an  agreement  to  put  service 
against  capital,  and  share  the  profits  and  losses,  will  warrant  the  infer- 
ence of  a  partnership ;  but  such  does  not  absolutely  constitute  a 
partnership,  as  a  legal  conclusion,  where  other  circumstances  show  that 
no  partnership  was  created  or  intended.  See  Bates,  Partn.  §  29,  where 
this  subject  is  discussed,  and  numerous  instances  cited  to  show  that 
the  intention  controls  where  not  inconsistent  with  the  undertakings  of 
the  parties.  We  understand  this  to  accord  with  the  views  expressed 
by  Mr.  Justice  Cooley  in  Beecher  v.  Bush.  Among  the  cases  cited  in 
support  of  this  proposition  by  the  author  quoted  is  Morgan  v.  Stearns, 
41  Vt.  398,  in  which  it  is  said  that,  "  sharing  the  profits  and  loss  of 
the  business  is  not  decisive  as  between  the  parties,  as  there  may  have 
been  merely  an  arrangement  with  view  to  compensation  for  services." 
Again  :  "  When  plaintiff  was  to  cultivate  defendant's  farm,  each  to  pay 
half  of  the  expenses,  and  divide  the  profits  equally,  a  charge  that  the}T 
were  partners  was  held  erroneous."  This  arrangement  plainly  covered 
a  sharing  of  the  losses,  as  well  as  profits  ;  and  such  contracts  are  of 
every-day  occurrence,  yet  no  one  thinks  of  treating  them  as  partner- 
ships, though  they  might  be  if  the  parties  so  intended.  Donnell  v. 
Harshe,  07  Mo.  170.  In  McDonald  v.  Matney,  82  Mo.  358,  the  owner 
of  a  bank  agreed  to  give  A.  one-third  of  his  net  profits  for  a  year ;  A. 
to  bear  one-third  of  the  losses,  and  to  attend  to  the  business,  but  B.  to 
have  entire  control.  The  court  said  that  mere  participation  in  profit 
and  loss  does  not  necessarily  constitute  a  partnership  inter  se,  but  that 
it  is  a  question  of  intention.  Where  plaintiff  was  to  share  in  profits 
and  losses  of  defendant's  business  for  three  years,  in  the  proportion  of 
17£  per  cent,  and  to  act  as  salesman,  but  not  to  have  the  right  of 
partnership  in  the  firm,  and  the  capital  then  standing  to  his  credit  on 
the  books  was  to  remain  in  at  7  per  cent,  but  he  could  draw  an  annual 


s 


o 


]  TEST    OF   INTENTION. 


amount  for  his  support,  it  was  held  that  the  parties  were  not  partners 
inter  se.     Osbrey  v.   Reimer,  51   X.    Y.   680.     See,  also,  Stevens 
Faucet,  24  111.  483;  Fawcett  v.  Osborn,  32  111.  412;  Mair  v.  Glennie, 
4  Maule  &  S.  240;  Dwinel  v.  Stone,  30  Me.  384  ;  Ross  v.  Parkyns, 
L.  R.  20  Eq.  331  ;  Walker  v.  Hirsch,  27  Ch.  Div.  460;  Bullen  v.  Sharp, 
L.  R.  1  C.  P.  86.     In  the  case  of  Monroe  v.  Grecnhoe,  54  Mich.  9,  "  A 
man  arranged  with  a  firm  that  he  would  buy  standing  timber,  and  cut, 
pile,  and  ship  it,  being  paid  therefor  its  cost  and  a  certain  sum  per 
thousand.     The  firm  was  to  sell   it,  and,  after   paying   all   expenses, 
was  to  divide  the  net  proceeds  with  him  equally,  and  he  was  to  bear 
half  the  losses.     But  he  had  nothing  to  do  with  disposing  of  it  after 
shipment,  and  the  firm  had  no  control  over  it  before.     Held,  that  this 
arrangement  did  not  amount  to  a  partnership  as  to  the  unshipped  lumber 
at  least ;  and  the  parties  concerned  could  not  be  taxed  as  a  firm  upon 
such  lumber."     In  that  case  Mr.  Justice    Campbell,  speaking  for  a 
unanimous  bench,  said :  "  We  do  not  think  this  agreement  made  any 
partnership,  in  the  proper  sense  of  the  term,  except,  possibly,  in  such 
lumber  as  was  actually  loaded  on  the  car,  and  there  are  difficulties  iu 
the  way  of  holding  even  that."     Dutcher  v.  Buck,  96  Mich.  167,  should 
not  be  held  conclusive  of  the  question  in  this  case.     There  was,  in  that 
instance,  "  community  of  property,  interest,  and  profits."     Such  was 
not  the  case  here,  for  there  was  not  community  of  property.     Whea- 
ton  was  owner  of  nothing,  while  the  plaintiff  was  owner  of  all  materials, 
and  its  credit  might  be  pledged  upon  the  basis  of  monthly  payments 
for  labor  and  such  materials  as  it  did  not  furnish.     Again,  in  the  case 
before  us  the  status  of  the  parties  is  made  clear,  and  it  is  apparent 
that  the  relation  of  principal  and   agent  was  intended.     It  does  not 
appear  so  clearly  in  Dutcher  v.  Buck.     The  circuit  judge  was  therefore 
in  error  in  his  instruction  that  the  plaintiff  and   Wheaton  were   co- 
partners, and  that  a  verdict  must  be  rendered  for  the  defendant. 

The  judgment  should  therefore  be  reversed.     A  new  trial  is  directed. 

Long  and  Grant,  JJ.,  concurred  with  Hooker,  J. 

Montgomery,  J.,  and  McGrath,  C.  J.,  dissented. 


CLIFT  v.    BARROW. 

108  N.  Y.  1*7.     1888. 

Peckham,  J.  This  is  an  action  brought  by  the  plaintiff,  who  alleges 
that  he  is  the  surviving  partner  of  the  firm  of  C.  Pardee  &  Co.,  against 
George  Barrow,  the  maker  of  a  promissory  note  dated  the  1st  of  .Jan- 
uary, 1877,  payable  one  year  after  date,  to  the  order  of  C.  Pardee, 
who  died  on  or  about  the  9th  of  April,  1878,  without  having  indorsed 
it.  The  plaintiff  claims  that  the  note  is  a  part  of  the  assets  of  the  linn 
of  C.  Pardee  &  Co.,  and  that  he  is  the  survivor  of  that  (inn.  The 
defendant  puts  in  a  general  denial. 


94  PARTNERSHIP  AS  TO  THIRD  PERSONS.      [CHAP.  II. 

First.  Upon  the  trial  the  plaintiff,  for  the  purpose  of  sustaining  his 
claim  to  be  the  survivor  of  the  firm  of  C.  Pardee  &  Co.,  put  in  evidence 
the  following  paper : 

Mem.  of  an  agreement  made  between  the  said  parties,  .  .  .  that  the  said 
Pardee  to  use  the  name  of  the  said  Clift  in  the  firm  of  C.  Pardee  &  Co.,  in 
the  business  of  banking  in  Skaneateles ;  that  said  Clift  is  not  to  participate 
in  the  profits  or  losses  of  the  said  firm,  except  that  the  said  Clift  is  to  havo 
for  his  share  of  the  profits  ten  per  cent  per  annum  for  all  deposits  he  may 
make  in  said  banking  office  from  time  to  time.  The  said  Pardee  doth  hereby 
covenant  to  and  with  said  Clift  to  keep  him  harmless  from  all  losses,  debts, 
dues,  or  demands  that  may  come  against  said  firm  of  C.  Pardee  &  Co. ;  and  it  is 
hereby  agreed  and  understood  between  the  said  parties,  that  the  said  partner- 
ship is  to  continue  so  long  and  no  longer  than  is  quite  agreeable  to  both  par- 
ties, each  party  having  the  privilege  of  dissolving  the  said  firm  at  any  time  he 
may  choose,  the  said  Pardee  returning  to  said  Clift  all  his  deposits  in  the  said 
banking  house,  with  ten  per  cent  per  annum,  payable  semi-annually.  This 
agreement  to  bind  the  heirs  and  assigns  of  the  respective  parties. 

Witness  our  hands  and  seals  this  31st  day  of  December,  1870. 

C.  Pardee  [L.  S.], 
J.  L.  Clift  [L.  S.]. 

He  also  gave  evidence  tending  to  prove  that  Pardee  and  himself, 
after  the  execution  of  this  agreement,  did  business  under  and  in  pur- 
suance of  it ;  that  the  business  was  done  by  Pardee,  but  under  this 
agreement,  and  that  there  was  no  other  agreement  between  them.  The 
evidence  was  sufficient,  if  believed,  to  show  that  under  that  agreement, 
from  the  time  of  its  execution  until  the  death  of  Pardee,  the  business 
of  C.  Pardee  &  Co.  was  transacted.  Evidence  was  also  given  tending 
to  show  that  this  note  formed  part  of  the  assets  of  that  firm,  if  the  fact 
of  the  partnership  were  established ;  and  the  case  was  submitted  to  the 
jury  upon  these  two  questions  :  (1)  Whether  the  parties  had  acted 
under  the  agreement  above  set  forth  ;  and  (2)  Whether  this  note  was 
part  of  the  assets  of  the  firm.  The  jury  in  finding  a  verdict  for  the 
plaintiff  necessarily  found  both  of  these  issues  in  his  favor,  and  the 
first  question  which  arises  here  is  whether  the  paper  above  set  forth 
can  be  properly  construed  as  forming  a  partnership  between  the  plain- 
tiff and  Pardee. 

We  think  it  can.  In  the  first  place  the  intention  to  form  a  partner- 
ship seems  to  be  plain.  That  intent,  while  not  controlling,  is  still 
important  in  the  examination  and  consideration  of  the  paper  executed 
by  the  parties,  and  which  is  claimed  to  amount  to  an  agreement  for 
the  formation  of  a  partnership  between  them.  There  is  a  mutual  agree- 
ment that  Pardee  is  to  use  the  name  of  Clift  in  the  firm  of  C.  Pardee 
&  Co.  in  the  banking  business  at  Skaneateles.  That  must  mean  that 
Pardee  and  Clift  are  to  enter  into  partnership  to  that  effect.  The 
plaintiff  must  be  taken  to  have  known  that  by  the  agreement  thus 
made,  when  acted  upon,  and  when  his  name  was  therefor  used  with  his 
consent  as  one  of  the  firm,  that  he  thus  became  liable  for  the  debts  of 


§3.]  TEST    OF    INTENTION.  95 

the  firm  created  under  this  agreement  from  the  time  of  its  execution 
and  the  entering  into  the  business  of  the  firm  under  it.  The  plaintiff 
thus  contributes  to  the  firm  his  name  and  his  liability  to  pay  the  debts 
thereof.  It  is  then  provided  that  Clift  is  not  to  participate  in  the 
profits  or  losses  of  the  firm.  That  expression  is,  however,  immediately 
explained  by  stating  that  he  is  to  participate  in  the  profits  and  the 
amount  of  such  participation  is  to  be  measured  by  ten  per  centum  upon 
all  deposits  that  he  may  make  in  the  banking  office  of  this  firm,  from 
time  to  time.  Looking  at  the  whole  instrument  it  fails  to  show  that 
plaintiff  is  not  to  participate  in  the  profits  ;  but  the  language  used  is 
simply  another  way  of  expressing  the  idea  that  the  profits  which  Clift 
is  to  be  entitled  to  from  this  firm  are  to  be  measured  by  the  amount  of 
ten  per  cent  upon  such  deposits  as  he  may  from  time  to  time  make  in 
the  banking  house.  And  it  does  not  mean  that  he  is  to  receive  this 
ten  per  centum  upon  all  his  deposits  in  case  the  profits  of  the  concern 
should  not  amount  to  that  sum  ;  but  the  clear  idea  to  be  obtained  from 
the  language  used  is  that  his  share  of  the  profits  is  to  be  measured  by 
this  ten  per  cent,  provided  there  have  been  profits  to  that  amount  from 
which  such  payment  made  be  made.  The  promise  of  Pardee  to  return 
to  plaintiff,  upon  the  dissolution  of  the  firm,  the  deposits  made  by  him 
in  the  banking  house,  with  ten  per  cent,  etc.,  must  be  also  construed  as 
based  upon  the  same  condition  (implied  from  the  language  used),  that 
the  profits  shall  equal  the  ten  per  cent.  If  there  are  no  profits,  then 
the  only  obligation  is  to  return  the  deposits,  and  that  obligation  is 
simply  a  debt  from  Pardee  to  the  plaintiff.  A  condition  of  there  being 
profits  is  thus  attached  to  the  payment  of  the  ten  per  cent,  both  during 
the  existence  of  the  firm  and  subsequent  to  its  dissolution. 

It  is  claimed,  however,  on  the  part  of  the  defendant,  that  the  agree- 
ment to  Pardee,  whereby  he  covenants  with  the  plaintiff  to  keep  him 
harmless  from  all  losses,  debts,  dues,  or  demands  that  may  come 
against  said  firm  of  C.  Pardee  &  Co.,  shows  that  there  never  was  any 
partnership  entered  into  between  the  two.  It  is  argued  that  there  was 
no  right  to  claim  profits,  as  profits,  under  this  agreement,  and  that  there 
was  no  liability  for  losses  sustained  b}*  the  firm  because  of  this  agree- 
ment to  indemnify  made  b\-  Pardee.  In  regard  to  the  profits  we  have 
already  spoken  ;  as  to  the  losses,  the  plaintiff  was  liable  from  the 
moment  the  agreement  was  signed,  and  business  done  pursuant  to  it, 
for  all  the  debts  that  might  be  contracted  in  the  course  of  the  transac- 
tion of  the  firm  business.  The  covenant  was  not  one  to  prevent  the 
existence  of  any  liability  on  the  part  of  the  plaintiff,  but  it  was  a  mere 
covenant  to  indemnify  and  save  harmless  the  plaintiff  from  all  losses, 
debts,  dues,  or  demands  that  might  come  against  the  firm.  The 
result  of  this  agreement  is  that  the  plaintiff  hazarded  his  property  in 
the  venture  with  Pardee,  and  it  is  no  answer  to  claim  that  he  was 
never  entitled  to  any  profits,  as  profits,  because  lie  made  no  agreement 
and  was  under  no  obligation  to  make  deposits  with  the  firm.  That 
was  simply  the  mode  pointed  out  by  the  agreement  by  which  his  share 


96  PARTNERSHIP  AS  TO  THIRD  PERSONS.       [CHAP.  II. 

of  the  profits  was  to  be  determined,  and  it  was  in  no  sense  a  provision 
that  he  should  not  be  entitled  to  profits  as  profits. 

Second.  Coming  as  we  do  to  the  conclusion  that  this  agreement 
formed,  when  acted  under,  a  partnership  between  these  two  individuals, 
and  also  that  there  was  evidence  upon  which  to  find  that  the  note  in 
suit  was  a  portion  of  the  assets  of  the  firm,  the  main  question  in  dis- 
pute is  disposed  of. 

The  court  was  asked  to  charge  the  jury  that  if  it  should  find  from 
the  evidence,  that  this  contract  was  a  device  to  cover  usury  between 
the  parties  to  it,  then  the  plaintiff  in  this  action  cannot  succeed.  The 
court  refused,  and  the  plaintiff  excepted.  In  this  we  think  there  was 
no  error.  Construing  this  contract  as  we  do,  the  fact  appears  that  the 
plaintiff  put  his  whole  property  at  the  hazard  of  the  successful  termina- 
tion of  the  business  of  this  firm,  with  no  right  to  any  interest  unless  it 
arose  from  profits ;  and  that  the  money  which  he  deposited  was,  as  we 
have  stated,  simply  a  measure  upon  which  to  compute  the  ten  per  cent 
for  his  profit  arising  from  the  banking  business,  provided  for  in  the 
contract  of  partnership.  There  was  no  evidence  in  the  case  upon 
which  to  predicate  any  allegation  of  this  instrument  being  used  as  a 
device  to  cover  usury,  assuming  that,  if  such  device  did  exist,  it  might 
be  proved  without  having  been  alleged  as  a  defence  in  the  action.  So 
long  as  by  the  terms  of  the  instrument  he  was  not  entitled  to  interest, 
unless  the  profits  were  enough  to  pay  it,  we  see  no  basis  for  submitting 
any  question  of  usury  to  a  jury.  There  is  no  evidence  that  the  plain- 
tiff had  the  least  knowledge  of  there  having  been  no  profits  upon  any 
occasion  when  the  interest  was  credited  to  him.  He  took  no  part  in 
the  management  of  the  firm  business,  and  was  ignorant  of  how  it  stood 
financially.  The  court  committed  no  error  in  its  refusal  to  charge  as 
requested.   .  .  . 

We  think  that  the  decision  of  the  Circuit  and  General  Term  were 
right  and  that  the  judgment  should  be  affirmed  with  costs. 

All  concur,  except  Ruger,  Ch.  J.,  not  sitting. 

Judgment  affirmed. 


-yv^ 


r-V 


§  4.    Partner  by  Estoppel. 

THOMPSON  et  al.  v.  FIRST  NAT.  BANK  OF  TOLEDO. 

Ill  U.  S.  530.     1884. 


Gray,  J.  The  plaintiff  (below)  at  the  trial  sought  to  charge  Thomp- 
son with  liability  as  a  partner  upon  two  grounds  :  First,  that  he  was 
actually  a  partner.  Second,  that  if  not  actually  a  partner,  he  had  held 
himself  out  to  the  world  as  such.  And  the  case  was  submitted  to  the 
jury  upon  both  grounds  (who  returned  a  verdict  for  plaintiff). 

The  first  and  second  assignments  of  error  relate  to  the  exclusion  o' 


S  4.]  PARTNER   BY   ESTOPPEL.  ST 

evidence  offered  by  the  defendants  bearing  upon  the  first  ground  of 
action.  The  third  and  fourth  assignments  of  error  relate  to  the  instruc- 
tions given  and  refused  as  to  the  second  ground  of  action.  ... 

The  remaining  and  the  principal  question  in  the  case  is,  whether  the 
liability  of  Thompson,  by  reason  of  having  held  himself  out  as  a  partner, 
was  submitted  to  the  jury  under  proper  instructions. 

The  court  was  requested  to  instruct  the  jury  that  if  Thompson  was 
not  in  facta  member  of  the  partnership,  the  plaintiff  could  not  recover 
against  him,  unless  it  appeared  from  the  testimony  that  he  had  know- 
ingly permitted  himself  to  be  held  out  as  a  partner,  and  that  the 
plaintiff  had  knowledge  thereof  during  its  transactions  with  the  partner- 
ship. The  court  declined  to  give  this  instruction  ;  and  instead  thereof 
instructed  the  jury,  in  substance,  that  if  Thompson  permitted  himself 
to  he  held  out  to  the  world  as  a  partner,  by  advertisements  and  other- 
wise, as  shown  by  the  evidence,  and  to  be  introduced  to  other  persons 
as  a  partner,  the  plaintiff  was  entitled  to  the  benefit  of  the  fact  that  he 
was  so  held  out,  and  he  was  estopped  to  deny  his  liability  as  a  partner, 
although  the  plaintiff  did  not  know  that  he  was  so  held  out,  and  did  not 
rely  on  him  for  the  payment  of  the  plaintiff's  debt,  or  give  credit  to 
him.  in  whole  or  in  part. 

This  court  is  of  opinion  that  the  Circuit  Court  erred  in  the  instruc- 
tions to  the  jury,  and  in  the  refusal  to  give  the  instruction  requested. 

A  person  who  is  not  in  fact  a  partner,  who  has  no  interest  in  the 
business  of  the  partnership  and  does  not  share  in  its  profits,  and  is 
sought  to  be  charged  for  its  debts  because  of  having  held  himself  out, 
or  permitted  himself  to  be  held  out,  as  a  partner,  cannot  be  made  liable 
upon  contracts  of  the  partnership,  except  with  those  who  have  contra- 
dicted with  the  partnership  upon  the  faith  of  such  holding  out.  In  such 
a  case,  the  only  ground  of  charging  him  as  a  partner  is,  that  by  his  con- 
duct in  holding  himself  out  as  a  partner  he  has  induced  persons  dealing 
with  the  partnership  to  believe  him  to  be  a  partner,  and,  by  reason  of 
such  belief,  to  give  credit  to  the  partnership. 

As  his  liability  rests  solely  upon  the  ground  that  he  cannot  be  per- 
mitted to  deny  a  participation,  which,  though  not  existing  in  fact,  he 
has  asserted,  or  permitted  to  appear  to  exist,  there  is  no  reason  why  a 
creditor  of  the  partnership,  who  has  neither  known  of  nor  acted  upon 
the  assertion  or  permission,  should  hold  as  a  partner  one  who  never  was 
in  fact,  and  whom  he  never  understood  or  supposed  to  be,  a  partner, 
at  the  time  of  dealing  with  and  giving  credit  to  the  partnership. 

There  may  be  cases  in  which  the  holding  out  has  been  so  public  and 
so  long  continued  that  the  jury  may  infer  that  one  dealing  with  the 
partnership  knew  it  and  relied  upon  it,  without  direct  testimony  to  that 
effect.  But  the  question  whether  the  plaintiff  was  induced  to  change 
his  position  by  acts  done  by  the  defendant  or  by  his  authority,  is,  as  in 
other  cases  of  estoppel  in  pais,  a  question  of  fact  for  the  jury,  and  not 
of  law  for  the  court.  The  nature  and  amount  of  evidence  requisite  to 
satisfy  the  jury  may  vary  according  to  circumstances.      Hut  the  rule  of 


98  PARTNERSHIP    AS    TO   THIRD    PERSONS.  [CHAP.  II. 

law  is  alwa}*s  the  same,  that  one  who  had  no  knowledge  or  belief  that 
the  defendant  was  held  out  as  a  partner,  and  did  nothing  on  the  faith 
of  such  a  knowledge  or  belief,  cannot  charge  him  with  liability  as  a 
partner  if  he  was  not  a  partner  in  fact. 

The  whole  foundation  of  the  theory  that  a  person,  who.  not  being  in 
fact  a  partner,  has  held  himself  out  as  a  partner,  may  be  held  liable  as 
such  to  a  creditor  of  the  partnership  who  had  no  knowledge  of  the  hold- 
ing out,  and  who  never  gave  credit  to  him  or  to  the  partnership  by 
reason  of  supposing  him  to  be  a  member  of  it,  is  a  statement  attributed 
to  Lord  Mansfield  in  a  note  of  a  trial  before  him  at  nisi  prizes,  in  1784, 
as  cited  by  counsel  in  a  case  in  which  it  was  sought  to  charge  as  a 
partner  one  who  had  shared  in  the  profits  of  a  partnership.  By  so 
much  of  that  note  as  was  thus  cited,  which  is  the  only  report  of  the 
case  that  has  come  down  to  us,  it  would  appear  that  in  an  action  by 
Young,  a  coal  merchant,  against  Mrs.  Axtell  and  another  person,  to 
recover  for  coals  sold  and  delivered,  the  plaintiff  introduced  evidence 
that  Mrs.  Axtell  had  latel}*  carried  on  the  coal  tirade,  and  that  the  other 
defendant  did  the  same  under  an  agreement  between  them,  by  which 
she  was  to  bring  what  customers  she  could  into  the  business,  and  the 
other  defendant  was  to  pa}'  her  an  annuity,  and  also  two  shillings  for 
even*  chaldron  that  should  be  sold  to  those  persons  who  had  been  her 
customers  or  were  of  her  recommending  ;  and  that  bills  were  made  out 
in  their  joint  names  for  goods  sold  to  her  customers  ;  and  that  the  jury 
found  a  verdict  against  Mrs.  Axtell,  after  being  instructed  by  Lord 
Mansfield  that  "  he  should  have  leather  thought,  on  the  agreement  only, 
that  Mrs.  Axtell  would  be  liable,  not  on  account  of  the  annuity,  but  the 
other  payment,  as  that  would  be  increased  in  proportion  as  she  increased 
the  business.  However,  as  she  suffered  her  name  to  be  used  in  the 
business,  and  held  herself  out  as  a  partner,  she  was  certainly  liable, 
though  the  plaintiff  did  not,  at  the  time  of  dealing,  know  that  she  was 
a  partner,  or  that  her  name  was  used."  Young  v.  Axtell,  at  Guildhall 
Sittings  after  Hilary  Term,  24  Geo.  III.,  cited  in  Waugh  v.  Carver, 
2  H.  Bl.  235,  242.  But  as  the  case  was  not  there  cited  upon  the  ques- 
tion of  liability  by  being  held  out  as  a  partner,  it  is  by  no  means  certain 
that  we  have  a  full  and  accurate  report  of  what  was  said  by  Lord  Mans- 
field upon  that  question  ;  still  less  that  he  intended  to  lay  down  a 
general  rule,  including  cases  in  which  one,  who  in  fact  had  never  taken 
any  part  in  or  received  an}*  profits  from  the  business,  held  himself  out 
as  a  partner. 

In  delivering  the  judgment  of  the  Common  Bench  in  Waugh  v.  Carver, 
Chief  Justice  Eyre  said  :  "  Now  a  case  ma}*  be  stated  in  which  it  is  the 
clear  sense  of  the  parties  to  the  contract  that  they  shall  not  be  partners  ; 
that  A.  is  to  contribute  neither  labor  nor  mone}*,  and,  to  go  still  further, 
not  to  receive  any  profits.  But  if  he  will  lend  his  name  as  a  partner, 
he  becomes,  as  against  all  the  rest  of  the  world,  a  partner,  not  upon 
the  ground  of  the  real  transaction  between  them,  but  upon  principles  of 
general  policy,  to  prevent  the  frauds  to  which  creditors  would  be  liable- 


§  4.]  PARTNER    BY    ESTOPPEL.  99 

if  they  were  to  suppose  that  they  lent  their  money  upon  the  apparent 
credit  of  three  or  four  persons,  when  in  fact  they  lent  it  only  to  two  of 
them,  to  whom,  without  the  others,  they  would  have  lent  nothing." 
2  II.  Bl.  246. 

This  statement  clearly  shows  that  the  reason  and  object  of  the  rule 
by  which  one,  who.  having  no  interest  in  the  partnership,  holds  himself 
out  as  a  partner,  is  held  liable  as  such,  are  to  prevent  frauds  upon  those 
who  lend  their  money  upon  the  apparent  credit  of  all  who  are  held  out 
as  partners  ;  and  the  later  English  authorities  uniformly  restrict  accord- 
ingly the  effect  of  such  holding  out. 

In  Mclver  v.  Humble,  in  the  King's  Bench  in  1812,  Lord  Ellen- 
borough  said  :  "  A  person  may  make  himself  liable  as  a  partner  with 
others  in  two  ways,  either  by  a  participation  in  the  loss  or  profits  ;  or 
in  respect  of  his  holding  himself  out  to  the  world  as  such,  so  as  to 
induce  others  to  give  a  credit  on  that  assurance."  And  Mr.  Justice 
Bayleysaid:  "To  make  Humble  liable,  he  must  either  have  been  a 
partner  in  fact  in  the  loss  and  profit  of  the  ship,  or  he  must  have  held 
himself  out  to  be  such.  Now  here  he  was  not  in  fact  a  partner,  and 
the  goods  were  not  furnished  upon  his  credit,  but  upon  the  credit  of 
Holland  and  Williams."     16  East,  169,  174,  176. 

In  Dickinson  v.  Valpy,  in  the  same  court  in  1829,  Mr.  Justice  Parke 
(afterward  Baron  Parke  and  Lord  Wensleydale)  said:  "If  it  could 
have  been  proved  that  the  defendant  had  held  himself  out  to  be  a 
partner,  not  '  to  the  world,'  for  that  is  a  loose  expression,  but  to  the 
plaintiff  himself,  or  under  such  circumstances  of  publicity  as  to  satisfy 
a  jury  that  the  plaintiff  knew  of  it  and  believed  him  to  be  a  partner,  he 
would  be  liable  to  the  plaintiff  in  all  transactions  in  which  he  engaged 
and  gave  credit  to  the  defendant,  upon  the  faith  of  his  being  such 
partner.  The  defendant  would  be  bound  by  an  indirect  representation 
to  the  plaintiff,  arising  from  his  conduct,  as  much  as  if  he  had  stated  to 
him  directly  and  in  express  terms  tbat  he  was  a  partner,  and  the 
plaintiff  had  acted  upon  that  statement."  10  B.  &  C.  128,  140.  See 
also  Carter  v.  Whalley,  1  B.  &  Ad.  11. 

In  Ford  v.  Whitmarsh,  in  the  Court  of  Exchequer  in  1840,  a  direc- 
tion given  by  Baron  Parke  to  the  jury  in  substantially  the  same  terms 
was  held  by  Lord  Abinger,  Baron  Parke,  Baron  Gurney,  and  Baron 
Rolfe  (afterward  Lord  Cranworth)  to  be  a  sound  and  proper  direction  ; 
and  Baron  Parke,  in  explaining  his  ruling  at  the  trial,  said:  "  I  told 
the  jury  that  the  defendant  would  be  liable  if  the  debt  was  contracted 
whilst  he  was  actually  a  partner,  or  upon  a  representation  of  himself  as 
a  partner  to  the  plaintiff,  or  upon  such  a  public  representation  of  him- 
self in  that  character  as  to  lead  the  jury  to  conclude  that  the  plaintiff, 
knowing  of  that  representation  and  believing  the  defendant  to  be  a 
partner,  gave  him  credit  under  that  belief."  Hurlstone  &  Wahnsley, 
53,  55. 

In  Pott  v.  Eyton,  in  the  Common  Bench  in  1846,  which  was  an  action 
by  bankers  to  recover  a  balance  of  account  against  Eyton  and  Joins, 


100  PARTNERSHIP   AS   TO   THIRD   PERSONS.  [CHAP.  II. 

on  the  ground  that  either  they  were  actual  partners  in  the  business 
carried  on  by  Jones,  or  Eyton  had  by  his  own  permission  been  held  out 
as  a  partner,  Chief  Justice  Tindal,  delivering  the  judgment  of  the  court, 
said :  ' '  There  was  no  evidence  to  show  that  credit  was  in  fact  given  to 
Eyton,  or  that  the  bankers  knew  that  his  name  was  over  the  door  of 
the  shop  at  Mostyn  Quay,  or  that  they  supposed  him  to  be  a  partner. 
One  person  who  had  been  manager,  and  another,  who  had  been  a  clerk 
in  the  bank,  were  in  court ;  and  if  they  could  have  given  such  evidence, 
they  would  no  doubt  have  been  called  as  witnesses.  We  must  assume 
therefore  that  credit  was  given  to  Jones  alone ;  and  if  Eyton  is  to  be 
made  liable,  that  must  be  on  the  ground  of  an  actual  partnership 
between  himself  and  Jones."     3  C.  B.  32,  39. 

In  Martyn  v.  Gray,  in  the  same  court  in  1863,  Chief  Justice  Erie 
and  Mr.  Justice  Willes  expressed  similar  opinions.  14  C.  B.  n.  s. 
824,  839,  843.  The  decision  of  the  Court  of  Exchequer  in  Edmanson 
v.  Thompson,  in  18G1,  is  to  the  like  effect.  31  L.  J.  n.  s.  Ex.  207; 
s.  c.  8  Jurist  (n.  s.),  235. 

Mr.  Justice  Lindley,  in  his  Treatise  on  the  Law  of  Partnership,  sums 
up  the  law  on  this  point  as  follows :  "  The  doctrine  that  a  person  hold- 
ing himself  out  as  a  partner,  and  thereby  inducing  others  to  act  on  the 
faith  of  his  representations,  is  liable  to  them  as  if  he  were  in  fact  a 
partner,  is  nothing  more  than  an  illustration  of  the  general  principle  of 
estoppel  by  conduct." 

"  The  expression  in  Waugh  v.  Carver,  '  if  he  will  lend  his  name  as  a 
partner  he  becomes  as  against  all  the  rest  of  the  world  a  partner,' 
requires  qualification  ;  for  the  real  ground  on  which  liability  is  incurred 
by  holding  one's  self  out  as  a  partner  is  that  credit  has  been  therebv 
obtained.  This  was  put  with  great  clearness  by  Mr.  Justice  Parke  in 
Dickinson  v.  Valpy. 

"  No  person  can  be  fixed  with  liability  on  the  ground  that  he  has 
been  held  out  as  a  partner,  unless  two  things  concur,  viz.,  first,  the 
alleged  act  of  holding  out  must  have  been  done  either  by  him  or  by  his 
consent,  and  secondty,  it  must  have  been  known  to  the  person  seeking 
to  avail  himself  of  it.  In  the  absence  of  the  first  of  these  requisites, 
whatever  ma}7  have  been  done  cannot  be  imputed  to  the  person  sought 
to  be  made  liable  ;  and  in  the  absence  of  the  second,  the  person  seeking 
to  make  him  liable  has  not  in  any  way  been  misled."  Lindley  on  Partn. 
(1st  ed.),  45-47  ;  (4th  ed.)  48-50. 

The  current  of  authority  in  this  country  is  in  the  same  direction. 
Benedict  v.  Davis,  2  McLean,  347 ;  Hicks  v.  Cram,  17  Vt.  449  ;  Fitch 
v.  Harrington,  13  Gray,  469  ;  Wood  v.  Pennell,  51  Me.  52  ;  Sherrod  v. 
Langdon,  21  Iowa,  518  ;  Kirk  v.  Hartman,  63  Pa.  St.  97  ;  Hefner  v. 
Palmer,  67  111.  161  ;  Cook  v.  Penhryn  Slate  Co.,  36  Ohio  St.  135  ;  Uhl 
v.  Harvey,  78  Ind.  26.  The  only  American  case,  cited  at  the  bar,  which 
tends  to  support  the  ruling  below,  is  the  decision  of  the  Commission  of 
Appeals  in  Poillon  v.  Secor,  61  N.  Y.  456.  And  the  judgment  of  the 
Court  of  Appeals  in  the  later  case  of  Central  City  Savings  Bank  v. 


§  4.]  PARTNER   BY   ESTOPPEL.  101 

Walker,  G6  X.  Y.  424,  clearly  implies  that  in  the  opinion  of  that  court 
a  person  not  in  fact  a  partner  cannot  be  made  liable  to  third  persons  on 
the  ground  of  having  been  held  out  as  a  partner,  except  upon  the 
principle  of  equitable  estoppel,  that  he  authorized  himself  to  be  so  held 
out,  and  that  the  plaintiffs  gave  credit  to  him. 

The  result  is,  that,  both  upon  principle  and  upon  authority,  the  third 
and  fourth  assignments  of  error,  as  well  as  the  first,  must  be  sustained, 
the  judgment  of  the  Circuit  Court  reversed,  and  the  case  remanded  to 
that  court  with  directions  to  order  a  Ntio  trial. 


SCARF  v.  JARDINE. 

7  Appeal  Cases,  345.     1882. 

Scarf  and  Rogers  were  partners  under  the  name  of  W.  H.  Rogers  & 
Co.  In  Jul}',  1877,  the}'  dissolved  partnership.  Scarf  retired,  and  one 
Beech  formed  a  partnership  with  Rogers,  and  the  new  firm  carried 
on  business  under  the  old  name.  Jardine,  a  customer  of  the  old  firm, 
sold  and  delivered  goods  to  the  new  firm  after  the  change,  but  without 
notice  of  it.  After  receiving  notice,  he  sued  the  new  firm  for  the  price 
of  the  goods,  and  upon  their  bankruptcy  proved  against  their  estate. 
Later,  he  brought  this  action  for  the  price  against  the  late  partner  Scarf. 
Denman,  J.,  gave  judgment  for  Scarf.  The  Court  of  Appeal  reversed 
this,  and  gave  judgment  for  Jardine. 

Forbes,  Q.  C.,  and  67.  E.  S.  Fryer,  for  Scarf. 

Finlay,  Q.  C,  and  C.  A.  Russell,  for  Jardine. 

Lord  "Watson.  My  Lords,  this  case  has  been  disposed  of  by  the 
Court  of  Appeal  upon  the  assumption  that  the  position  of  the  appellant 
is,  in  law,  precisely  the  same  as  if  he  had  been  in  fact  a  partner  of  the 
firm  by  which  the  debt  sued  for  was  contracted.  Had  the  appellant 
actually  been  a  member  of  the  firm  of  W.  H.  Rogers  &  Co.  on  the  30th 
of  January,  1878,  when  the  goods,  the  price  of  which  is  now  in  ques- 
tion, were  ordered,  he  would  thereby  have  become  the  debtor  of  the 
respondent,  and  it  would  in  that  case  have  been  necessary  for  him  to 
satisfy  your  Lordships  that  the  facts  admitted,  or  proved,  are  sufficient 
to  sustain  the  inference  that  the  respondent  has  agreed  to  discharge  his 
claim  against  the  appellant,  and  to  accept  the  new  firm  of  W.  IT. 
Rogers  &  Co.  as  his  debtors.  In  such  circumstances  the  original 
debtor  must  continue  to  be  liable  unless  there  has  been  payment  or 
novation  of  the  debt. 

The  appellant  had,  in  point  of  fact,  ceased  to  be  a  partner  of  the  firm 
of  W.  II.  Rogers  &  Co.  before  the  goods  were  ordered  <>r  supplied  to 
the  new  firm.  Notwithstanding  that  fact,  he  was  estopped  from  assert- 
ing as  against  the  respondent,  who  had  been  one  of  his  customers,  that 
the  contract  was  not  made  with  the  old  firm,  because  notice  had  not 


102  PARTNERSHIP    AS    TO    THIRD    PERSONS.  [CHAP.  II. 

been  given  to  the  respondent  of  its  dissolution  by  his  ceasing  to  be  a 
partner.  In  other  words,  although  the  goods  were  ordered  and  received 
bjr  the  new  firm,  it  was  the  right  of  the  respondent,  if  he  chose  to  assert 
it,  to  insist  that  the  old  firm,  and  not  the  new,  must  be  held  to  have 
contracted  with  him,  and  to  be  liable  for  the  price  of  goods  supplied 
under  the  contract  before  he  received  the  notice  of  the  21st  of  February, 
1878.  He  had  the  undoubted  right  to  select  his  debtor,  to  hold  either 
the  old  firm  or  the  new  firm  responsible  to  him  for  the  fulfilment  of  the 
contract ;  but  I  know  of  no  authority  for  the  proposition  that  the 
respondent  could  hold  his  contract  to  have  been  made  with  both  firms, 
or  that,  having  chosen  to  proceed  against  one  of  these  firms  for  recovery 
of  his  debt,  he  could  thereafter  treat  the  other  firm  as  his  debtor. 

I  am  accordingly  of  opinion  that  the  facts  of  the  present  case  raise 
no  question  of  novation,  and  that  the  only  question  to  be  determined  is 
whether  the  respondent  did  or  did  not  elect  to  take  the  new  firm  of  W. 
H.  Rogers  &  Co.  as  his  debtors  for  the  price  of  the  goods  furnished  by 
him  prior  to  the  25th  of  Februaiy,  1878,  under  the  order  given  by  that 
firm  upon  the  30th  of  January. 

In  this  aspect  of  the  case  it  becomes  unnecessary  to  dispose  of  the 
question  discussed  and  decided  in  the  courts  below,  namely,  whether 
the  transaction  of  the  respondent  with  the  new  firm,  subsequent  to  the 
notice  of  Februaiy,  sufficiently  establish  the  appellant's  plea  of  novatio 
debiti.  I  am  of  opinion,  with  your  Lordships,  that  the  legal  proceedings 
to  which  the  respondent  resorted  in  August  and  September,  1878,  fully 
warrant  the  inference  that  he  did  elect  to  take  the  new  firm  as  his 
debtors,  and  consequently  that  he  has  no  right  to  recover  the  debt  for 
which  he  sues  from  the  appellant. 

Order  reversed :  judgment  of  Denman,  J. ,  restored,  with  costs} 


THAYER  v.   GOSS. 

91  Wis.  90  :  64  N.  W.  312.     1895. 

At  the  trial  by  the  court  it  was  found,  among  other  things :  (1) 
That  prior  to  November  5,  1891,  the  defendant  Alfred  J.  Goss  and 
J.  D.  Putnam  were  doing  a  milling  business  together  as  co-partners 
under  the  firm  name  of  J.  D.  Putnam  &  Co.  (2)  That  on  that  day 
the  partnership  was  dissolved,  and  the  said  Putnam  and  the  defendant 
Alfred  J.  Goss  signed  and  caused  to  be  published,  at  the  place  of 
said  business,  a  notice  as  follows,  to  wit :  "  Notice  of  Dissolution. 
Notice  is  hereb}T  given  that  the  co-partnership  formerly  existing  be- 
tween the  undersigned,  J.  D.  Putnam  and  Alfred  J.  Goss,  under  the 
firm  name  of   J.  D.  Putnam  &  Co.,  is  this  day  dissolved   by  mutual 

1  Lord  Selborne,  L.  C,  and  Lords  Blackburn  and  Bramwell  delivered  con- 
curring opinions. 


|4]  PARTNER    BY    ESTOrFEL.  10 


•■> 


consent,  and  the  business  will  in  the  future  be  carried  on  under  the 
firm  name  of  J.  B.  Goss  &  Co.,  who  will  settle  all  claims  of  the  late 
partnership.  J.  D.  Putnam.  Alfred  J.  Goss.  November  3,  1891." 
(3)  That  it  was  then  understood  that  the  partnership  property  should 
be  conveyed  to  the  defendant  J.  B.  Goss,  and  that  he  should  carry 
on  the  said  business,  and  pay  the  debts  of  the  firm  of  J.  D.  Putnam  & 
Co.,  doino;  business  under  the  name  of  J.  B.  Goss  &  Co.  ;  but  by 
mistake  the  property  was  conveyed  to  the  defendant  Alfred  J.  Goss, 
who.  pursuant  to  said  agreement,  afterwards  conveyed  it  to  the  de- 
fendant J.  B.  Goss,  and  he  carried  on  the  business  under  the  name  of 
J.  B.  Goss  &  Co.,  having  no  partner.  That  there  was  in  fact  no 
partnership  existing  between  the  defendants,  and  Alfred  J.  Goss  had 
no  interest  in  the  profits  of  the  business  of  J.  B.  Goss  &  Co.  as 
partner,  (t)  That  the  note  sued  on  was  executed  in  the  manner  and 
for  the  consideration  set  forth  in  the  complaint,  and  the  plaintiff, 
when  she  took  the  same,  understood  and  believed  that  J.  B.  Goss  & 
Co.  was  a  firm  consisting  of  J.  B.  Goss  and  Alfred  J.  Goss,  and  that 
there  was  such  a  holding  out  by  the  said  Alfred  J.  Goss  as  to  induce 
her  to  so  believe,  and  to  act  upon  such  belief.  As  a  conclusion  of 
law  the  court  held  that  the  plaintiff  was  entitled  to  judgment  against 
both  defendants  for  the  amount  of  the  note  and  costs.  Aside  from 
the  proof  of  the  signing  and  the  publishing  of  the  notice  as  before 
stated,  it  appeared  in  evidence  that  the  plaintiff  saw  the  published 
notice  in  the  "  River  Falls  Journal,"  and  she  testified  that  she  believed 
that  the  defendant  Alfred  J.  Goss  still  continued  in  the  business, 
but  she  had  never  heard  an}-  one  say  so ;  that  she  believed  that  J.  B. 
Goss  and  Alfred  J.  Goss  continued  the  business.  From  the  judg- 
ment on  such  finding   the  defendant,  Alfred   J.   Goss,  appealed. 

Spooner,  Sanborn,  Kerr,  &  Spooner,  for  appellant. 

F.  M.  White,   for   respondent. 

Pinxey,  J.  The  familiar  and  well-settled  rule  is  that  a  dissolution 
of  the  co-partnership  by  act  of  the  parties,  whether  a  complete  discon- 
tinuance of  the  concern,  or  the  retirement  of  a  single  partner,  or 
addition  of  a  member,  does  not  affect  the  outside  world,  unless  proper 
notice  is  given  ;  that  actual  notice  must  be  brought  home  to  former 
customers,  or  those  who  are  creditors  by  having  dealt  with  it,  but 
notice  by  publication  is  sufficient  as  to  all  others.  Bates,  Partn. 
§606;  1  Lindl.  Partn.  *221.  The  plaintiff  must  be  regarded  as  a 
former  customer  or  dealer  with  the  firm  of  J.  D.  Putnam  it  Co.,  and, 
as  such,  entitled  to  actual  notice,  she  having  loaned  them  money, 
though  but  in  a  single  instance,  for  which  she  was  then  their  creditor. 
She  comes  within  the  reason  of  the  rule.  Bates,  Partn.  >J  613;  Bank 
v.  Howard,  35  N.  Y.  500;  Lyon  v.  Johnson.  28  Conn.  1  :  Wardwell 
y.  Ilaight,  2  Barb.  553 ;  Vernon  v.  Manhattan  Co.,  22  Wend.  191 ; 
Bank    v.    Norton,    1    Hill,    577. 

The  ground  upon  which  notice  of  the  discontinuance  of  the  concern 
by  act  of  the  parties,  or  the   retirement  or  addition  of  a  member  is 


104  PAETNEESHIP  AS  TO  THIED  PEESONS.      [CHAP.  II. 

required,  is  stated  as  arising  from  a  species  of  estoppel  to  deny  the 
continuance  of  the  agency  of  each  of  the  partners  for  the  firm,  or  on 
the  ground  of  negligence  whereby  credit  is  given,  or  from  a  presump- 
tion of  a  continuance  of  the  former  relations,  giving  to  one  who  once 
knows  of  the  existence  of  a  firm  the  right  to  assume  that  it  remains 
the  same,  so  that,  until  proper  notice  of  dissolution,  a  partner's 
attitude  is  like  that  of  a  partner  by  holding  out.  Bates,  Partn. 
§  607  ;  Vernon  v.  Manhattan  Co.,  22  Wend.  192,  193.  In  Scarf  v. 
Jardine,  7  App.  Cas.  349,  it  is  stated  that  the  principle  upon  which 
those  who  have  dealt  with  the  firm  before  a  change  took  place  are 
entitled  to  assume,  until  they  have  notice  to  the  contrary,  that  no 
change  has  occurred,  "is  that  of  the  estoppel  of  a  person  who  has 
accredited  another,  as  his  known  agent,  from  denying  that  agency  at  a 
subsequent  time,  as  against  the  persons  to  whom  he  has  accredited 
him,  by  reason  of  any  secret  revocation,"  in  partnership,  there  being 
an  agency  by  which  one  partner  is  the  agent  of  the  firm  for  the  time 
being  to  carry  on  the  partnership  according  to  the  usual  course.  1  Lindl. 
Partn.  40;  Thompson    v.   Bank,  111   U.  S.  540,  541. 

The  plaintiff  saw  the  published  notice,  and  about  eighteen  months 
afterwards  she  took  the  note  upon  which  she  sues  in  lieu  of  the 
J.  D.  Putnam  &  Co.  note,  and  the  question  is  whether  the  published 
notice,  and  the  manner  in  which  the  new  note  was  executed,  can  be 
fairly  held  to  constitute  notice  to  the  plaintiff  that  the  defendant 
Alfred  J.  Goss  had  ceased  to  be  a  partner  in  the  concern.  If  the 
change  in  the  name  was  such  as  to  indicate  that  he  was  no  longer  a 
member,  there  would  certainly  be  no  ground  for  holding  him  liable. 
In  the  firm  name  of  J.  D.  Putnam  &  Co.,  Alfred  J.  Goss  was  men- 
tioned under  the  ambiguous  and  uncertain  designation  "  &  Co."  The 
notice  affirms  that  the  partnership  of  J.  D.  Putnam  &  Co.  is  dissolved, 
and  that  the  "business  will,  in  future,  be  carried  on  under  the  firm 
name  of  J.  B.  Goss  &  Co.,"  who  are  to  settle  all  claims  of  the  late  co- 
partnership. It  is  fairly  evident  that  a  new  member,  J.  B.  Goss,  has 
been  introduced  into  the  business,  and  it  may  fairly  be  inferred  that 
Putnam  had  retired.  Now,  what  business  was  it  that  in  future  would 
be  carried  on  under  the  new  firm  name?  Plainly,  the  business  of  the 
former  firm.  Here  is  no  intimation  that  Alfred  J.  Goss  has  retired. 
On  the  contraiy,  the  fair  implication  is  that  he  remains  under  the 
designation  "  &  Co.,"  as  was  the  case  in  the  name  and  style  of  J.  D. 
Putnam  &  Co.  Beyond  the  fact  of  the  dissolution  of  the  former 
co-partnership,  that  the  business  would  in  future  be  carried  on  under 
the  firm  name  of  J.  B.  Goss  &  Co.,  and  that  they  would  settle  all 
claims  of  the  late  co-partnership,  the  notice  wholby  fails  to  convey  any 
direct  information;  but,  as  observed,  we  think  it  may  be  fairly  in- 
ferred that  Putnam  had  withdrawn  and  that  Alfred  J.  Goss  remained  in 
the  business  ;  that  the  change  was  substantially  a  reorganization  by 
the  withdrawal  of  a  former  member  and  by  taking  in  a  new  one.  There 
is  no  intimation  that  Alfred  J.  Goss  had  sold  out  his  interest,  or  that 


8  4.]  PARTNER    BY    ESTOPTEL.  105 

he  had  no  interest  in,  or  was  not  a  member  of,  the  alleged  firm  of  J.  B. 

Goss  &  Co. 

The  proposition  is  laid  down  that  when  the  change  of  name  is  relied 
on  it  "  must  indicate  the  retirement  of  the  particular  partner  sought  to 
be  held,   for,  otherwise,    though    it    be  a  dissolution  of   the  identical 
partnership,  it  is   also  notice  of  a  new   one,  in  which  all   the  former 
members  ma)-  be  presumed  to  continue."     Bates,  Partn.  §  G23.     We 
regard  this  rule  as  eminently  practical  and  just,  and  it  has  the  sanction 
ofhigh  authority.     In  Howe  v.  Thayer,  17  Pick.  91,  there  was,  in  effect 
a  dissolution,  and   the  organization  of  another  firm  with  a  different 
name.     The  retiring  partner,  Thayer,  was  held   liable    to   the  former 
dealers,  because  the  change  of  name  did  not  indicate  that  he  was  the 
partner   going   out;  and   Shaw,  C.  J.,    said:     "When  a  business  is 
carried  on  by  three  or  more  as  partners,  and  one  withdraws,  or  one  is 
added,  or  both,  and  notice  thereof  given,  and  the  business  is  carried  on 
as  before,  those  as  to  whom  no  notice  is  given  must  be  presumed  to 
hold  the  same  relation  to  the  concern  that  they  did  before  ;  and  such  a 
change  furnished  no  presumption  that  the  others  have  ceased  to  be 
partners*.     If  the  plaintiff  knew  that  Colton  had  withdrawn,  and  ceased 
to  be  a  partner,  it  was  not,  in  law,  a  notice  to  the  plaintiff  of  the  dis- 
solution of  the  partnership,  as  to  all  its  members  to  the  effect  con- 
tended  for,    and    to    the    purpose   for   which    that    proposition    was 
advanced,  namely,  to  exempt  the   other  members  from  liability.     Or 
if   it  was,  in  a  certain  sense,  evidence  and  notice  of  the  dissolution 
of  the  same   identical   partnership  that  existed  before,  it  was  at  the 
same  time    evidence  and  notice  of  the  formation  of  a  new  partner- 
ship among  all  the  remaining  members  of  the  firm  to  carry  on  the  same 
business,  holding  the  same  relation  to  its  customers  and  the  public, 
with  the  single  exception  implied  from  the  fact   that  the  retiring  mem- 
ber will  be  no  longer  liable  for  new  contracts,  and   that  the  acceding 
partner  will   thenceforward   become   liable." 

But  it  is  insisted  that  the  new  note  was  not  given  by  the  firm  witli 
which  the  plaintiff  had  been  connected  ;  that  that  firm  had  been  dis- 
solved, and  that  there  never  was  in  fact  any  such  firm  as  J.  B.  Goss  & 
Co.  But  this  contention  is  met  and  answered  in  the  case  of  Thread  Co. 
v.  Wortendyke,  24  N.  Y.  550,  in  which  the  rule  laid  down  in  Howe  v. 
Thayer,  supra,  is  cited  and  approved.  In  that  case  Denio,  J.,  says 
that:  "In  every  case  where  a  partner  has  withdrawn,  and  there  is  a 
further  dealing  with  the  remaining  partners  under  such  circumstances 
as  to  leave  the  retiring  partner  responsible,  the  contract  is  not  between 
the  creditor  and  the  former  firm,  but  it  is  witli  a  new  firm,  which  the 
creditor  has  been  led  to  believe  still  embraced  the  partner  who  has  in 
fact  gone  out.  The  hare  fact,  therefore,  of  the  dissolution  of  the  old 
firm  and  the  creation  of  a  new  one,  witli  which  the  credit  BOQght  to  he 
enforced  was  had,  and  which  did  not  embrace  one  of  the  old  partners, 
is  not  conclusive  against  the  plaintiff."  In  the  present  case  the  notice 
was  to  the  effect  that  ''the  business  will  in  future  be  carried  on  under 


^06  PARTNERSHIP    AS    TO   THIRD    PERSONS.  [CHAP.  II. 

the  firm  name  of  J.  B.  Goss  &  Co.,"  who  will  settle  all  claims  of  the 
late  partnership,  and  it  is  said  that  no  such  firm  was  created  ;  but, 
whether  so  or  not,  the  signature  to  the  new  note,  as  well  as  the  notice, 
gives  rise  to  the  just  inference,  we  think,  that  Alfred  J.  Goss  continued 
in  the  business  under  the  new  name,  and,  if  there  was  no  new  firm 
formed  in  fact,  it  is  difficult  to  see  how  he  can  claim  to  be  exonerated 
from  liability.  In  the  case  of  Thread  Co.  v.  Wortendyke,  supra,  the 
firm  with  which  the  plaintiff  had  dealt  was  "  Wortendyke  Brothers." 
Subsequently  the  firm  was  dissolved,  and  one  of  the  brothers  retired, 
and  a  new  firm  was  formed,  another  brother  becoming,  with  the  others, 
members  of  the  new  firm,  under  the  firm  name  of  "  Wortendyke 
Brothers  &  Company  ;  "  and  a  note  was  given  to  the  plaintiff,  a  former 
dealer,  in  the  latter  name,  for  goods  sold  after  the  dissolution.  The 
plaintiff  having  had  no  actual  notice  of  the  dissolution,  it  was  held  that 
the  retiring  member  was  liable  on  the  note,  notwithstanding  the  change 
in  the  firm  name,  and  that  the  plaintiff  had  a  right  to  assume  that  the 
former  partners  remained  in  the  business  ;  that  a  change  of  firm  name, 
in  order  to  exonerate  a  retiring  partner,  must  show  that  he  had  with- 
drawn from  the  business,  and  that  a  change  not  indicating  this  is 
insufficient  to  put  dealers  on  inquiry. 

It  must  be  held,  we  think,  that  the  notice  in  this  case  was  an  assur- 
ance or  holding  out  to  the  plaintiff  and  former  dealers  that  the  business 
would  be  carried  on  under  the  new  name  of  J.  B.  Goss  &  Co.  Alfred 
J.  Goss  had  been  described  in  the  firm  name  of  J.  D.  Putnam  &  Co. 
as  the  company,  and  the  fact  that  the  name  of  J.  B.  Goss  took  the 
place  of  that  of  J.  D.  Putnam  was  no  notice  of  the  withdrawal  of  Alfred 
J.  Goss,  but,  upon  the  principles  already  stated,  was  equivalent  to  a 
holding  out  that  he  still  remained  in  the  business,  and  as  a  member  of 
the  firm  of  J.  B.  Goss  &  Co.,  designated  therein  in  like  manner  as  in 
the  case  of  the  firm  of  J.  D.  Putman  &  Co!,  whether  any  such  firm 
existed  or  not ;  so  that  he  is  liable  on  the  note  in  suit,  signed  in  the 
name  of  J.  B.  Goss  &  Co.,  as  by  holding  out  and  by  estoppel.  We 
think  that  the  judgment  of  the  Circuit  Court  is  correct. 

The  judgment  of  the  Circuit  Court  is  affirmed 


ASKEW  v.  SILMAN. 

95  Ga.  678 :  22  S.  E.  573.     1895. 

Simmons,  C.  J.  Mrs.  Silman  sued  Askew  and  others,  alleged  to  be 
members  of  the  firm  of  Austin  &  Co.,  upon  a  promissory  note  signed 
in  the  firm  name,  and  dated  June  17,  1890.  Askew  pleaded  "Not 
indebted  ;  "  also  that  he  had  not  signed  the  note,  nor  authorized  any 
person  to  do  so  for  him,  and  had  never  ratified  the  signing  ;  and  further, 
>iat  he  was  not  a  member  of  the  firm  when  the  note  was  signed,  and 


§  4.]  PARTNER    BY    ESTOPPEL.  107 

was  not  bound  by  the  contract ;  that  the  firm  was  dissolved  January  11, 
1SS8,  and  had  ceased  to  do  business  from  that  date,  which  fact  was 
known   to   the   plaintiff  when  the   note   was   executed.      There    was   a 
verdict  for  the   plaintiff  against  all  the  defendants  sued,  and  Askew- 
made  a  motion  for  a  new  trial,  which  was  overruled,  and  he  excepted. 
1.    The  main  question  at  issue  on  the  trial  of  the  ease  was  whether 
there  was  such  notice  of  the  dissolution  of  the  partnership  as  would 
relieve  Askew  from  liability  for  the  debt  in  question.     It  appeared 
from  the  evidence  that  the  dissolution  took  place,  as  alleged  in  the 
plea,  more  than  two  years  prior  to  the  date  of  the  note,  and  that  the 
note  was  given  by  Austin,  one  of  the  co-partners,  without  the  knowledge 
or  consent  of  Askew,  for  money  borrowed  by  Austin  in  the  name  of 
the   firm  at   the  time    the   note  was  executed.     Askew's  withdrawal 
from  the  partnership  was  announced  soon  after  the  dissolution,  in  a 
newspaper  published   in  the  town  in  which  the  plaintiff  resided  and 
the  firm  conducted  its  business,  the  announcement  appearing  at  dif- 
ferent times,  in  the  form  of  news  items  written  by  the  editor  of  the 
paper.     The  plaintiff  was  a  subscriber  to  the  newspaper  when  these 
notices  appeared,  but  testified  that  she  did  not  see  them,  and  that  she 
had  no  notice  or  knowledge  of  the  dissolution  at  any  time  prior  to  the 
execution  of  the  note,  but  supposed,  when  she  took  the  note,  that 
Askew    was  still  a  member  of  the  firm.     She  had  been  a  customer 
of  the   firm,    as   a   purchaser  of  goods,   during   Askew's   connection 
with  it,   but  was  not  a  creditor  before  the  date   of  the   note.     The 
court,  in  certain  instructions  to  the  jury,   which   are   complained   of 
by  the   plaintiff  in  error,  charged  them,  in  effect,  that  if  the  plaintiff 
was  a  "  customer"  of  the  firm,  she  would  be  entitled  to  actual  notice  £^ 
of  the  dissolution.     We  think    the  court   erred   in  so  charging.     In 
order   to  relieve   an  ostensible  partner  from  liability  for  debts  con- 
tracted in  the  partnership  name  subsequently  to  his  withdrawal  from  the 
firm,  the  dissolution  must  be  made  known  "to  creditors  and  to  the 
world "    (Code,    §    1895)  ;    but    it    is   not   necessary    that   the    notice 
should  be  actual  or  personal  except  to  creditors.     Although  it  is  often 
said  in  text-books  and  decisions  that  actual  notice  or  knowledge  of  the 
dissolution  must  be  brought  home  to  former  "customers"  of  the  firm, 
this  language  has  reference  only  to  creditors.     See  2  Bates,    Partn. 
§  G13  ;  17  Am.  &  Eng.  Enc.  Law,  p.  1124.     A  customer,  in  the  sense  in 
which  the  term  was  used  in  this  case,  — that  is  to  say,  one  whose  deal- 
ings with  the  partnership  have  been  confined  to  the  purchase  of  its  goods. 
—  is  entitled  only  to  such  notice  as  should  be  given  to  "  the  world." 

2-4.  As  to  the  notice  which  should  be  given  to  "  the  world,"  no 
inflexible  rule  can  be  laid  down.  Publication  in  a  public  gazette  circu- 
lated in  the  locality  in  which  the  business  of  the  partnership  has  been 
conducted,  if  such'  publication  is  fair  and  reasonable  as  to  its  terms 
and  the  number  of  times  it.  is  made,  is  usually  sufficient  notice  to  the 
world.  Ewing  v.  Trippe,  7:'.  Ga.  77C  ;  T.  Tars.  Partn.  (4th  ed.)  §  ;;'7. 
and  notes.     And  see  Richards  v.  Butler,  65  Ga.  598  ;  Ellison  v.  Sexton, 


108  PARTNERSHIP    AS   TO   THIRD    PERSONS.  [CHAP.  II. 

105  N.  C.  356.  An  editorial  notice,  not  signed  by  any  member  of  the 
firm,  may  be  as  effectual  for  this  purpose  as  an  advertisement  purport- 
ing to  issue  by  authority  of  the  partners  over  their  signature.  Solomon 
v.  Kirkwood,  55  Mich.  256 ;  Young  v.  Tibbitts,  32  Wis.  79.  Whether 
this  is  so  or  not  is  generally  a  question  for  the  jury,  and  the  court  in 
the  present  case  erred  in  charging,  as  a  matter  of  law,  that  such  notice 
would  not  be  sufficient.  "It  is  not  an  absolute,  inflexible  rule  that 
there  must  be  a  publication  in  a  newspaper  to  protect  a  retiring  partner. 
Any  means  of  fairly  publishing  the  fact  of  such  dissolution  as  widely 
as  possible,  in  order  to  put  the  public  on  its  guard,  —  as,  by  advertise- 
ment, public  notice  in  the  manner  usual  in  the  community,  the  with- 
drawal of  the  exterior  indications  of  the  partnership,  —  are  proper  to 
be  considered  on  the  question  of  notice."  Lovejoy  v.  Spafford,  93  U. 
S.  430.  It  should  be  left  to  the  jury  to  say  whether  the  retired  partner 
made  a  reasonable  and  bona  fide  effort  to  acquaint  the  public  with  the 
fact  of  his  retirement,  and  whether,  on  the  other  hand,  the  creditor, 
with  the  means  and  opportunity  afforded  him,  knew,  or  ought  to  have 
known,  of  the  fact.  Even  in  the  absence  of  an}'  showing  that  notice  of 
the  dissolution  was  given,  the  fact  that  a  considerable  time  elapsed 
between  the  dissolution  and  the  contracting  of  the  debt  has  been 
deemed  sufficient  to  render  the  creditor  chargeable  with  notice.  Cer- 
tainly this  fact  would  go  far  to  show  that  the  debt  was  not  or  ou^ht 
not  to  have  been  contracted  on  the  credit  of  a  former  partner.  ■  T. 
Pars.  Parte.  (4th  ed.)  §§  317,  322.  There  is  some  question  as  to 
whether  the  jury  may  infer  notice  from  general  notoriety  of  the  dissolu- 
tion. See  2  Bates,  Parte.  §  622,  and  cases  cited.  We  think,  however, 
that  the  evidence  excluded  b}-  the  court  below  in  this  case,  as  to  the 
general  notoriety  of  Askew's  withdrawal  from  the  partnership,  although 
such  notoriety  may  not  of  itself  have  been  sufficient  to  charge  the 
plaintiff  with  notice  of  the  fact,  ought  to  have  been  allowed  to  go  to 
the  jury,  to  be  considered  by  them  for  what  it  was  worth,  in  connection 
with  the  other  evidence  bearing  on  the  question  of  notice. 

Judgment  reversed. 


In  re  FRASER.     Ex  parte  CENTRAL  BANK  OF  LONDON. 

[1892.]    2  Q.  B.  633. 

The  bank  presented  a  bankruptcy  petition  against  John  and  William 
Fraser,  on  a  bill  for  £500  accepted  in  the  name  of  W.  &  J.  Fraser. 
John  Fraser  resisted  the  making  of  a  receiving  order  against  him,  on  the 
ground  that  at  the  date  of  acceptance  he  was  not  a  partner  with  William 
Fraser.  The  registrar  found  that  this  was  the  fact,  and  dismissed  the 
petition  as  to  John  Fraser. 

Hopkinson,Q.  C,  and  Vivian  Morter,  for  the  bank. 

F.  H.  Mellor,  for  John  Fraser,  was  not  heard. 


§  4.]  PARTNER    BY    ESTOPrEL.  109 

Kay,  L.  J.  ...  As  regards  the  question  of  "  holding  out,"  I  think  it 
is  clearhy  proved  that  at  the  time  when  the  acceptance  was  given  John 
Fraser  was  not  a  partner  in  the  firm.  He  had  been  a  partner,  but  the 
partnership  had  been  dissolved,  and  the  business  was,  with  the  consent 
of  John  Fraser,  being  carried  on  b}-  William  Fraser  under  the  old  firm 
name.  The  bank,  who  claimed  to  be  creditors  of  John  Fraser  in  respect 
of  the  acceptance,  had  had  no  dealing  with  the  old  firm.  Does  the 
fact  that  John  Fraser  permitted  his  brother  to  carry  on  the  business 
under  the  old  firm  name  amount  to  the  representation  by  him  to  the 
bank  that  he,  John  Fraser,  was  a  partner  in  the  firm?  I  think  that 
Newsome  v.  Coles,  2  Camp.  617,  shows  that  it  does  not.  In  that  case 
Thomas  Coles  and  his  three  sons,  "William,  George,  and  Charles,  had 
carried  on  business  in  partnership  under  the  firm  of  "Thos.  Coles  & 
Sons."  The  father  died  in  1805,  and  the  three  sons  continued  to  carry 
on  business  under  the  same  firm  till  the  year  1808.  George  and  Charles 
then  withdrew,  and  established  a  new  business  under  a  new  firm. 
Notice  of  the  dissolution  of  partnership  was  published  in  the  "London 
Gazette,"  and  was  sent  round  to  the  correspondents  of  the  house. 
William  Coles  continued  the  old  business  by  himself,  under  the  old 
firm,  and  in  March,  1810,  he  accepted  in  that  name  a  bill  of  exchange 
drawn  upon  Thomas  Coles  &  Sons.  The  plaintiff,  the  holder  of  the 
bill,  had  not  had  any  dealings  with  the  partnership  of  Thomas  Coles  & 
Sons,  when  composed  of  the  three  brothers,  and  when  he  took  the  bill 
he  did  not  know  that  that  partnership  had  been  dissolved.  He  sued 
the  three  brothers  upon  the  acceptance,  and  it  was  held  by  Lord  Ellen- 
borough  that  the  brothers  George  and  Charles  were  not  liable.  They 
had  done  all  that  they  could  to  notify  the  dissolution  of  the  old  partner- 
ship. In  the  present  case  the  evidence  shows  that,  when  the  dissolu- 
tion of  partnership  took  place,  the  partners  notified  it  to  their  bankers 
and  to  their  principal  creditors.  The  appellants  say  that  before  they 
discounted  the  bill  they  inquired  of  those  bankers  who  were  the  part- 
ners in  the  firm  of  W.  &  J.  Fraser,  and  that  the  manager  told  them  John 
Fraser  was  a  partner.  But  the  manager  was  not  called,  and  there  is 
really  no  evidence  of  such  a  statement.  I  think  the  facts  bring  the 
case  within  the  principle  of  Newsome  v.  Coles,  and  that  there  is  no 
estoppel  as  against  John  Fraser.     In  my  opinion  the  registrar's  decision 

was  right. 

Appeal  dismissal .l 


*o* 


1  The  statement  of  facts  has  been  abridged,  and  Lord  Esheh's  opinion  is  omitted. 
Bowen,  L.  J.,  concurred. 


^10  PARTNERSHIP   AS    TO   THIRD    PERSONS.  [CHAP.  IL 

EVANS    &   HOWARD   CO.  v.    HADFIELD. 
93  Wis.  665:  68  N.  W.  468.     1896. 

The   action  is  against  the  defendant  alone   for  goods  sold.     The 
defendant  had  carried  on  business  at  Milwaukee  under  the  firm  name 
"  Hadfield  &  Co."     In  January,  1892,  he  bought  the  entire  business, 
and  continued  it  in  his  own  name,  "  Joseph  Hadfield,"  or  by  his  initial, 
"  J.  Hadfield,"  indifferently,  until  November,  1892,  when  he  sold  out 
the  business  to  Julia  P.    Hadfield,   his  son's  wife,  and   her   mother. 
From  this  time  the  business  was  carried  on  in  the  firm  name  of  "J. 
Hadfield  &  Co.,"  with  the  defendant's  son,  Charles,  as  general  man- 
ager.    The  plaintiff  is  a  non-resident  corporation,  residing  at  St.  Louis, 
in  the  State  of  Missouri,  and  had  done  business  with  the  defendant  as 
"Hadfield    &   Co.,"    "Joseph    Hadfield,"    and    "J.    Hadfield."      It 
received  no  notice  that  the  defendant  had  gone  out  of  business.     In 
December,  1892,  it  received  orders  for  goods  by  telegraph,  followed  by 
letters  all  signed  tw  J.  Hadfield  &  Co."     Plaintiff  replied  by  telegraph  to 
Joseph  Hadfield  &  Co.     It  shipped  the  goods  to  Joseph  Hadfield  & 
Co.     They  were  charged  on  plaintiff's  books,  invoiced,  and  shipped  to 
Joseph   Hadfield.     It  does  not  appear  that  Joseph  Hadfield  had  any 
interest  in  the  business  of  J.  Hadfield  &  Co.     But  it  does  appear  that 
he  was  cognizant  of  the  firm  name  in  which  it  carried  on  its  business, 
and  he  had  paid  the  plaintiff  for  goods  previously  ordered  and  shipped 
to  J.  Hadfield  &  Co.     On  the  evidence  it  was  held,  in  effect,  that  the 
defendant  should  be  estopped  to  deny  that  he  was  one  of  the  firm  of  J. 
Hadfield  &  Co.,  and  judgment  was  given  against  him  for  the  plaintiff's 
debt.     From  that  judgment  this  appeal  is  taken. 

Hoyt,  Ogden,  &  Atwell,  for  appellant. 

Elliot,  Hickox,  &  Groth,  for  respondent. 

Newman,  J.  ...  It  is  further  urged  that  the  evidence  which  tends 
to  show  an  estoppel  is  insufficient  to  sustain  the  verdict.  The  defendant 
had  been  carrying  on  a  business  at  Milwaukee  under  the  style  "  Joseph 
Hadfield"  and  "J.  Hadfield,"  indifferently.  He  was  known  to  the 
plaintiff  with  whom  he  had  dealt  under  both  names.  After  sale  to 
his  son's  wife  and  her  mother,  the  same  business  was  carried  on  at 
Milwaukee,  with  his  knowledge,  and  without  his  dissent,  in  the  name 
of  "J.  Hadfield  &  Co.,"— the  same  name  with  the  "  &  Co."  added. 
This  was  not  the  initial  of  any  member  of  the  firm.  The  firm  was 
Julia  P.  Hadfield  and  her  mother.  The  firm  name  used  naturally  sug- 
gested, or  might  suggest,  that  the  defendant  had  taken  one  or  more 
partners  into  his  business,  but  was  not  calculated  to  suggest  that  the 
defendant  had  retired  from  the  business.  His  name  was  really  the 
explicit  part  of  the  firm's  designation.  It  was  well  calculated  to 
deceive.  The  defendant  should  have  foreseen  that  this  use  of  his  name 
was  well  suited  to  give  the  impression  that  he  was  the  leading  partner 
in  the  new  firm,  — at  least,  to  those  who  had  dealt  with  him  as  J 


§4]  PARTNER    BY    ESTOPPEL.  Ill 

Hadfiekl.  It  was  his  name  ami  initial.  From  identity  of  name,  it  is 
natural  to  infer  identity  of  person.  When  this  use  of  his  name  by  his 
successors  in  the  business  was  brought  to  his  notice,  it  would  seem 
that  common  prudence,  not  to  say  good  faith,  should  have  induced  him 
to  notify,  at  least,  his  former  correspondents  that  he  had  retired  frum 
the  business;  for  so  he  might  avert  peril  from  himself,  and  loss  from 
them.  For  it  cannot  be  said  that  the  order  in  the  new  firm's  name. 
which  contained  both  the  defendant's  surname  and  initial  as  it  had  been 
used  by  him  in  the  business,  made  in  the  same  business  in  which  he 
had  previously  dealt  with  the  plaintiff,  could  fairly  be  deemed  to  con- 
stitute'notice  to  the  plaintiff  that  the  defendant  had  retired  from  the 
business.  On  the  contrary,  the  retention  of  his  name  would  seem 
rather  to  indicate  that  he  is  continuing  in  the  business  as  a  part  of  the 
new  firm.  Thayer  r.  Goss,  91  Wis.  90.  it  is  a  familiar  principle  that, 
where  one  of  two  innocent  persons  must  suffer  a  loss,  that  one  through 
whose  fault  or  carelessness  the  occasion  for  loss  arises  must  bear  it. 
The  evidence  was  sufficient  to  take  the  question  to  the  jury.  It  seems 
to  have  been  fairly  submitted,  and  the  verdict  is  amply  sustained  by 
the  evidence. 

There  was  a  special  verdict  with  no  general  finding  against  the 
defendant.  There  was  no  dispute  about  the  general  facts  not  found  in 
the  special  verdict.  On  the  undisputed  evidence  and  verdict  the  court 
entered  judgment  against  the  defendant  alone  for  the  amount  of  the 
plaintiffs  claim.  This  was  no  error,  for,  though  the  effect  of  the 
evidence  and  verdict  is  to  estop  the  defendant  to  deny  that  he  is  one 
of  the  firm  of  J.  Hadfiekl  &  Co.,  and  to  render  him  liable  to  the  plain- 
tiff in  the  same  manner  and  to  the  same  extent  as  if  he  had  been  in 
fact  a  partner  in  that  firm,  Thayer  v.  Goss,  supra;  Thayer  v.  Humph- 
rey, 91  Wis.  276,  he  was  not  liable  severally  for  the  whole  debt,  but 
only  jointly  with  the  real  partners,  Keith  Bros.  &  Co.  v.  Stiles,  92  Wis. 
15,  and  had  a  right  to  insist  that  they  should  be  joined  as  defendants 
in  the  action,  and  that  the  judgment  should  not  be,  in  form,  severally 
against  him,  but  jointly  against  all  the  partners.  Brawley  v.  Mitchell,  92 
Wis.  G71.  But  he  had  waived  this  right  to  require  the  joinder  of  other 
parties  as  defendants,  and  to  have  merely  a  joint  judgment  against 
himself,  by  not  pleading  this  defect  of  parties  in  abatement.  Rev.  St. 
2649,  20.34  ;  Smith  v.  Cooke,  31  Md.  174  ;  1  Enc.  of  PI.  &  Prac.  14, 
and  cases  cited  in  notes. 

T lie  judgment  of  the  Circuit  Court  in  <ij)irmea\ 


112  PARTNERSHIP  AS  TO  THIRD  PERSONS.       [CHAP.  II. 

SHERROD   et  al.   v.   LANGDON  et  al. 

21  la.  518.     1866. 

Plaintiffs  seek  to  recover  damages  resulting,  as  the}r  allege,  from 
the  purchase  by  them,  of  defendants,  of  a  certain  lot  of  sheep.  In  one 
count  it  is  alleged  that  the  sheep  were  represented  to  be  free  from  dis- 
ease, and  that  this  was  false.  Defendants  appeal  from  a  verdict  for 
plaintiffs. 

Hendershott  <&  Burton,  for  the  appellants. 

Perry  &  Townsend,  for  the  appellees. 

Wright,  J.  .  .  .  The  court  instructed  the  jury  that  if  H.  Langdon 
participated  in  the  sale  of,  and  so  talked  and  acted  in  connection  with 
the  sale  as  to  lead  plaintiffs,  as  reasonable  men,  to  believe  the  said 
Hemy  was  a  partner  in  said  sheep,  and  the}'  so  understood  it,  and  he 
did  not  correct  the  impression,  then  he  is  estopped  from  now  denying 
it  as  against  plaintiffs.  The  giving  of  this  instruction  is  now  assigned 
as  error,  upon  the  ground  that  the  defendant  Hemy  is  not  liable,  if  not 
the  owner  or  party  beneficially  interested,  unless  his  representations 
were  relied  upon  and  induced  the  purchase.  And  we  are  referred  to 
McCracken  v.  West,  17  Ohio,  16.  There,  however,  the  representa- 
tions were  made  to  one  person  or  firm,  and  a  third  party  claimed  the 
benefit  of  it.  No  such  question  is  made  or  arises  in  this.  Nor  does 
the  point  made  in  argument  arise,  for  the  only  proposition  ruled  by  the 
instruction  is,  that  this  defendant  might  be  liable,  though  not  a  part- 
ner or  interested  in  the  sale,  if  he  held  himself  out  as  such,  and  in- 
duced the  plaintiffs  to  believe  that  he  was  such  partner.  .  .  . 

Judgment  affirmed. 


TAYLOR  v.   WILSON. 

58  N.  H.  465.     1878. 

Plaintiff,  as  mortgagee  of  certain  property,  brought  trespass  against 
the  defendant,  who,  as  sheriff,  attached  and  sold  the  chattels  on  a  writ 
against  Thayer  and  Wellman.  It  appeared  that  Thayer  and  Wellman 
had  carried  on  a  meat  business  as  partners,  during  a  part  of  1875, 
although  Thayer  never  acquired  an}T  ownership  in  the  property  in  ques- 
tion, and  left  the  business  in  November,  1875.  No  formal  dissolution 
ever  took  place.1 

Albee,  for  the  plaintiff. 

Barber,  for  the  defendant. 

Clark,  J.  Persons  may  so  conduct  themselves  as  to  become  liable  as 
partners,  although  no  partnership  actually  exists  ;  as,  when  one  allows 
his  name  to  be  used,  and  himself  to  be  held  out  as  a  partner,  the  law 

1  The  statement  of  facts  has  been  abridged. 


§4.]  PARTNER    BY    ESTOPPEL.  113 

holds  him  responsible,  as  a  partner,  to  third  persons  dealing  with  the 
supposed  firm.  So  a  person,  by  permitting  his  property  to  be  used  and 
held  out  as  the  property  of  a  partnership,  may  make  that  property 
liable  for  the  debts  of  the  partnership.  Pars,  on  Partn.  495.  In  such 
case  the  ownership  of  the  property  is  not  changed,  but  the  owner,  by 
permitting  his  property  to  appear  as  the  property  of  the  firm,  as  a  part 
of  the  foundation  of  their  credit,  is  estopped,  as  to  the  creditors  of  the 
firm,  to  claim  that  the  property  is  not  the  property  of  the  firm. 

But,  in  the  present  case,  both  parties  claim  title  to  the  property  in 
controversy  under  Wellman,  —  the  plaintiff,  under  the  mortgage  of 
January  10,  1876,  and  the  defendant,  under  the  attachment  of  July  29, 
1876.  The  defendant  claims  to  hold  the  property  not  because  it  was 
ever  really  the  property  of  Thayer  &  "Wellman,  or  because  Thayer  ever 
had  any  interest  in  it,  but  because  Wellman  has  so  conducted  himself 
that  he  is  estopped  to  deny  that  it  was  the  property  of  Thayer  &  "Well- 
man  ;  but  both  parties  claiming  under  "Wellman,  the  plaintiff  is  not 
estopped  from  showing  the  actual  ownership  of  the  property,  and,  the 
property  being  in  fact  the  property  of  Wellman.  the  plaintiff's  mort- 
gage, being  prior  in  point  of  time,  is  valid  against  the  defendant's 
attachment. 

Case  discharged. 

Stanley,  J.,  did  not  sit. 


GREEN,  HUFFAKER,  &  CO.  v.   TAYLOR  &  SON. 

98  Ky.  330  :  32  S.  W.  945.  1895. 

Guffy,  J.  This  action  was  instituted  in  the  Pulaski  Circuit  Court  by 
Green,  Huffaker,  &  Co.  against  E.  R.  Taylor  &  Son  to  recover  judg- 
ment on  a  claim  of  $286.35,  and  plaintiffs  also  sued  out  an  attachment 
against  the  property  of  the  defendants,  which  attachment  was  levied  on 
a  lot  of  merchandise  as  the  property  of  defendants.  The  appellant 
E.  J.  Thistler,  about  the  same  time,  brought  suit  in  the  police  court  of 
Pmrnside,  in  said  county,  against  the  defendants,  and  also  procured  a 
levy  of  an  attachment  on  the  same  propert}*,  which  suit  was  transferred, 
as  provided  by  law,  to  the  Pulaski  Circuit  Court,  and  consolidated  with 
the  suit  of  Green,  Huffaker,  &  Co.  against  defendants.  An  order  of 
sale  was  obtained,  and  the  attached  property  was  sold,  and  proceeds 
held  subject  to  the  final  order  of  the  court.  The  defendant  E.  R.  Tay- 
lor answered,  and  substantially  alleged  that  he  alone  constituted  the 
firm  of  E.  R.  Taylor  &  Son,  and  was  the  individual  owner  of  the  goods 
levied  on.  That  his  son,  R.  L.  Taylor,  was  a  boy,  under  21  years  old, 
and  was  clerking  for  him,  and  by  this  means  only  was  identified  with 
him  in  the  business.  He  also  controverted  the  grounds  of  the  attach- 
ment, and  averred  that  he  was  a  bona  fide  housekeeper,  witli  a  family, 
and  that  he  had  no  provisions  on  hand  to  sustain  his   family   lor  one 

8 


114  PARTNERSHIP   AS    TO    THIRD    PERSONS.  [CHAP.  IL 

year,  or  any  length  of  time,  and  that  the  goods  levied  upon  were  the 
only  personal  property  that  he  owned  out  of  which  he  could  receive 
property  in  lieu  of  said  provisions  not  on  hand,  and  prayed  that  the 
attachment  be  dismissed,  and  that  he  be  allowed  the  money  realized 
from  the  sale  of  the  attached  property.  Plaintiffs,  in  their  reply, 
averred,  in  substance,  that  at  the  time  defendants  purchased  the  goods 
mentioned  in  their  accounts,  the  defendants  reported  to  them  (plaintiffs) 
that  the}'  were  doing  business  as  merchants  and  partners  under  the  firm 
name  of  E.  R.  Taylor  &  Son,  and  believing  said  representations  to  be 
true,  and  not  knowing  that  R.  L.  Taylor  was  under  21  years  of  age, 
upon  the  facts  of  said  representation  believing  that  the}'  were  partners, 
did  give  them  credit,  and  sell  them  the  goods,  the  price  for  which  is 
now  sued  for ;  that  said  defendants  held  themselves  out  to  the  world  as 
partners  :  and  that,  if  the}'  (plaintiffs)  had  known  defendants  were  not 
partners,  they  would  not  have  sold  the  goods  ;  and  pleaded  the  said 
representations  as  an  estoppel ;  also  traversed  all  the  material  aver- 
ments of  the  answer,  and  denied  that  any  exemptions  can  be  legally 
allowed  defendant  out  of  the  proceeds  of  the  said  property.  Appellants 
further  charged  that  defendant  retained  in  his  hands,  and  converted  to 
his  use,  and  that  of  his  family,  notes  and  accounts  more  than  sufficient 
to  cover  the  amount  allowed  a  housekeeper  with  a  family. 

The  material  averments  in  the  reply  were  denied  by  the  defendant  in 
his  rejoinder.  The  court,  upon  final  hearing,  rendered  judgment  in  favor 
of  the  plaintiffs  against  E.  R.  Taylor  &  Son  for  the  amount  of  their 
claim  sued  on,  the  same  not  being  controverted,  and  sustained  the  attach- 
ments, but  also  adjudged  that  defendant  E.  R.  Taylor  was  entitled  to  the 
money  realized  from  the  sale  of  the  attached  property,  in  lieu  of  provi- 
sions for  himself  and  family.  The  defendant  excepted  to  the  judgment 
sustaining  the  attachment,  and  plaintiffs  excepted  to  the  judgment 
adjudging  the  fund  aforesaid  to  E.  R.  Taylor,  and  to  reverse  same  the 
plaintiffs  prosecute  this  appeal,  and  appellee  has  taken  a  cross  appeal 
from  the  judgment  sustaining  the  attachment. 

We  have  carefully  read  the  evidence  in  support  of  the  attachment, 
and  we  think  that  it  sustains  the  judgment  as  to  the  attachment  and 
the  same  is  affirmed. 

Appellants  insist  that  the  court  erred  in  adjudging  the  proceeds  of 
the  sale  of  the  attached  property  to  E.  R.  Taylor.  Appellees'  conten- 
tion is  that  E.  R.  Taylor  was  entitled  to  hold  the  goods  levied  on,  under 
the  statute  allowing  certain  exemptions  in  lieu  of  provisions  not  on 
hand,  and  that,  the  property  having  been  sold,  appellee  was  entitled  to 
the  money  realized  by  the  sale.  It  is  also  claimed  that  the  son,  R.  L. 
Taylor,  was  under  21  years  of  age,  and  in  fact  only  a  clerk  in  the  store, 
and  in  fact  had  no  interest  in  the  goods,  and  that  the  firm  name  was 
only  used  as  a  matter  of  convenience.  The  proof,  however,  is  conclu- 
sive that  the  appellees  held  themselves  out  to  the  world  as  partners,  and 
purchased  the  goods,  the  price  of  which  is  sued  for,  from  these  plain- 
tiffs,   as  partners,  and  also  brought  suits  in  the  firm  name  of  E.  R 


> 


4.]  PARTNER    BY    ESTOPPEL.  Ill 


Taylor  &  Son  for  debts  due  them  as  such  ;  hence,  they  must  be  held  and 
considered  as  a  firm  so  far  as  this  action  is  concerned,  whether  or  not 
they  were  in  fact  partners.  There  was  some  claim  that  appellees  had 
about  8G00  in  notes  and  accounts,  but  that  claim  is  not  well  proven,  so 
the  onlv  question  to  be  decided  is  whether  or  not  one  member  of  a  linn 
can  claim  and  hold  partnership  property  under  and  by  virtue  of  the  ex- 
emption laws. 

It  is  true  that  there  is  considerable  conflict  of  authority  on  this  sub- 
ject, but,  so  far  as  we  are  advised,  this  question  has  never  been  decided 
b\'  this  court.  Mr.  Thompson,  in  his  work  on  Homestead  and  Exemp- 
tions, discusses  the  question  at  some  length,  and  refers  to  numerous 
decisions,  some  allowing  the  exemptions,  and  others  disallowing  the 
same,  and,  in  conclusion,  says  in  substance  that  the  preponderance  of 
authority  is  against  allowing  such  claim  of  exemptions.  §  21G.  This 
question  is  also  discussed  at  length  in  Freeman  on  Executions,  and,  in 
conclusion,  it  is  said:  "But  the  tendency  of  the  recent  decisions  to 
deny  altogether  the  right  to  exemption  out  of  partnership  property  or 
out  of  partnership  assets  is  unquestionable,  and  we  think  irresistible." 
1  Freera.  Ex'ns,  §  221. 

The  exemption  given  by  the  Kentucky  statutes  manifestly  refers  to 
and  means  property  owned  by  the  individual  debtor.  In  case  of  a 
partnership,  neither  member  has  title  to  firm  property,  but  the  title  is 
in  the  firm.  It  seems  to  us  that  our  statutes,  the  weight  of  authority, 
and  public  policy  all  require  the  rule  to  be  that  partnership  property 
cannot  be  claimed  and  held  by  any  member  of  the  firm  as  exempt  from 
execution.  It  results,  therefore,  that  the  court  below  erred  in  directing 
the  receiver  to  pay  over  to  E.  R.  Taylor  the  money  realized  from  the 
sale  of  the  attached  property.  That  judgment  is  therefore  reversed, 
and  cause  remanded,  with  directions  to  set  aside  that  judgment,  and  to 
adjudge  that  the  said  money  be  paid  to  the  plaintiffs  on  their  debts  pro 
rata,  or  according  to  priority  of  liens,  if  there  be  any  priority,  and  for 
proceedings  consistent  with  this  opinion. 

Affinntd  on  cross  appeal.    Reversed  on  original  appeal. 


BIXLER  et  al.   v.   KRESGE   et  al. 

169  Pa.  St.  405 :  32  At.  414.     1895. 

Green,  J.  .  .  .  On  the  question  of  the  alleged  partnership  between 
Kresge  and  Oscar  Green,  the  auditor  finds,  upon  tin:  testimony  taken 
before  him,  and  not  contradicted,  that,  as  between  the  men  themselves, 
there  never  was  any  actual  partnership  ;  that  while  it  is  true  Green  per- 
mitted himself  to  be  held  out  to  the  world  as  a  partner,  and  therefore, 
if  he  were  of  age,  he  would  be  liable  as  such,  in  point  of  fact  lie  was 
merely  a  hired  man,  working  for  fixed  wages,  and  had  no  interest  in  thu 


116  PARTNERSHIP   AS   TO   THIRD   PERSONS.  [CHAP.  II. 

business,  or  its  profits  or  losses.  He  also  finds  that  Green  contributed 
no  money  or  property  to  the  concern,  and  that,  while  he  signed  some 
notes  given  for  a  stock  of  store  goods,  he  paid  nothing  on  the  notes, 
and,  being  a  minor  who  repudiated  his  obligations  on  account  of  his 
minority,  he  was  subject  to  no  legal  liability  upon  the  notes.  The 
auditor  also  finds  that  the  tract  of  timber  land  in  Tunkhannock  town- 
ship was  purchased  by  Kresge,  and  the  title  taken  in  his  own  name, 
and  that  he  also  bought  a  portable  sawmill  in  his  own  name,  paid  all 
the  money  that  was  paid,  both  for  the  sawmill  and  on  the  land,  and  con- 
ducted all  the  lumber  operations  in  his  own  name.  These  being  the 
facts,  and  the  present  contest  being  a  contention  between  individual 
and  partnership  creditors,  the  familiar  doctrine  becomes  applicable  that 
partnership  creditors  must  work  out  their  claims  through  the  equity  of 
the  partner.  If  the  partner  has  no  equity,  there  is  nothing  to  support 
the  claims  of  the  partnership  creditors  to  the  assets  in  question,  as 
against  the  creditors  of  the  individual  partner  who  is  the  real  owner  of 
the  assets. 

In  York  Co.  Bank's  Appeal,  32  Pa.  St.  446,  there  was  a  written 
agreement  between  the  partners,  establishing  an  actual  and  subsisting 
partnership,  which  was  subsequently  conducted  publicly,  with  all  the 
usual  indicia  of  a  partnership.  But  one  of  the  partners  had  in  fact  not 
paid  in  any  part  of  the  capital,  and  the  assets  of  the  firm  were  in  reality 
contributed  by  the  other  partner,  whose  property  they  were  prior  to  the 
j)artnership.  It  was  held  that  an  individual  execution  creditor  of  the 
partner  who  owned  the  assets  was  entitled  to  preference  in  the  distri- 
bution of  the  proceeds  of  the  sale  of  the  property  of  the  firm,  over  a 
partnership  execution  creditor.  Thompson,  J.,  delivering  the  opinion 
said  :  "  Between  partners  themselves,  the  assets  of  the  firm  constitute 
a  fund  for  the  payment  of  their  liabilities,  and  each  member  has  an 
equity  which  he  can  enforce  to  accomplish  this  result,  and,  of  conse- 
quence, a  lien  on  the  property  to  this  extent.  .  .  .  When  a  creditor 
levies  on  the  property  of  a  firm,  his  execution  fixes  and  attaches  to  this 
right,  to  the  same  extent  that  it  existed  in  the  partners,  and  hence  the 
preference  over  a  separate  execution  creditor  in  the  distribution.  All 
this  is  predicable  of  a  case  of  joint  property  only.  But  where  there  was 
no  joint  property  the  rule  has  nothing  to  operate  on.  The  mere  name 
is  not  enough,  in  such  a  case.  There  must  be  an  equity.  If  that 
equity  never  existed,  a  creditor's  execution  could  not  attach  to  an}' 
right  amounting  to  a  lien,  to  have  the  assets  appropriated  to  a  partner- 
ship debt.  That  Moore  has  no  interest  in  the  firm  property  is  found 
by  the  auditor.  .  .  .  This  being  so,  the  property  levied  on  was  individ- 
ual property,  in  fact,  though  seized  in  the  firm's  name.  The  appellant 
cannot  work  out  his  equity  through  the  partners,  for  the}',  as  such,  did 
not  exist,  inter  se,  and  the  individual  owner  could  not  give  him  this 
right  over  a  prior  execution  against  him  individually."  All  this, 
and  more,  was  said  of  a  case  in  which  there  was  an  actual  part- 
nership, fully  agreed   upon,    and  really  carried  on  for  a   number   of 


s 


4.]  PABTNER   BY   ESTOPPEL.  11' 


mouths.  But  in  the  case  at  bar  there  never  was  a  partnership,  as 
between  the  alleged  partners,  and  this  the  auditor  finds  as  a  fact,  upon 
undisputed  testimony.  In  addition  to  that,  Green  never  furnished 
anything  to  the  firm,  and  therefore  acquired  no  title  to  the  firm  prop- 
erty. He  either  signed  or  indorsed  some  notes  with  his  individual 
name,  but  he  paid  nothing  on  them.  On  the  contrary,  he  was  paid 
a  mouthly  compensation  for  his  services  as  clerk  or  assistant.  It  is  too 
plain  for  argument  that,  as  between  Green  and  Kresge,  there  never  was, 
and  never  was  agreed  to  be,  any  partnership  relation.  In  point  of  fact, 
Green  never  contributed  a  dollar  of  money,  or  any  article  of  property, 
to  the  partnership  ;  and  he  never  agreed  or  intended  to  do  anything  of 
that  kind,  nor  could  Kresge  expect  him  to  do  so.  The  notes  on  which 
his  name  appeared  not  only  were  never  paid  by  him,  in  whole  or  in 
part,  but  the}*  did  not  appear  on  their  face  to  be  firm  notes,  and  his 
liability  could  never  be  more  than  an  individual  liability.  But,  such  as 
the}'  were,  he  was  a  minor  when  he  gave  them  ;  he  had  a  legal  right  to 
repudiate  them  ;  and  he  actually  did  repudiate  them,  as  soon  as  he 
attained  his  majority.  We  find  it  impossible  to  discover  in  the  testi- 
mony an}'  proof  of  the  existence  of  any  real  equity  in  Green,  as  a 
partner ;  and  therefore  there  is  nothing  upon  which  to  build  up  a  right 
on  the  part  of  any  firm  creditor  to  seize  upon  any  firm  property,  as 
against  an  individual  execution  creditor  of  Kresge,  who  had  acquired 
a  prior  lien  upon  the  goods. 

York  Co.  Bank's  Appeal  was  repeated  and  reaffirmed  in  Appeal  of 
Scull,  115  Pa.  St.  141,  where  the  facts  were  much  stronger  in  favor 
of  the  firm  creditors  than  they  are  in  the  present  case.  A  careful  read- 
ing of  the  whole  record  in  the  present  case,  including  the  argu- 
ments of  the  learned  counsel  on  both  sides,  convinces  us  of  the  entire 
correctness  of  the  conclusions  reached  by  the  auditor  and  the  learned 
court  below. 
The  decree  of  the  court  beloio  is  affirmed,  and  appeal  dismissed,  at 

the  cost  of  the  appellants. 


THAYER  v.    HUMPHREY :  DA  VIES   v.    HUMPHREY. 

91  Wis.  276  :  64  N.   W.   1007.     1895. 

Ox  Nov.  3,  1891,  the  firm  of  J.  D.  Putnam  &  Co.,  consisting  of  Put- 
nam and  A.  J.  Goss,  was  dissolved,  the  firm  and  its  members  being 
insolvent.  Although  there  was  some  confusion  surrounding  the  sale, 
the  majority  of  the  court  concluded  that  Putnam  supposed  he  was  sell- 
ing his  interest  to  J.  B.  Goss.  and  thai  such  purchaser  and  his  father, 
A.  J.  Goss,  were  to  cany  on  the  business  in  the  name  of  J.  B.  (loss  & 
Co.  ;  that  the  sale  of  Putnam's  interest  was  in  form  to  A.  J.  <  I  that 

the  latter  then  sold  the  business  to  J.  1).  Goss ;  that  it  was  the  inten- 


118  PARTNERSHIP   AS    TO   THIRD    PERSONS.  [CHAP.  IL 

tion  of  all  three  that  the  business  and  assets  of  J.  D.  Putnam  &  Co. 
should  be  devoted  to  the  payment  of  the  debts  of  the  old  partnership 
and  of  the  new  management ;  that  A.  J.  Goss  so  conducted  himself  as 
to  warrant  the  belief  on  the  part  of  all  persons  doing  business  with  J. 
B.  Goss  &  Co.  that  there  was  a  firm  in  fact  as  well  as  in  name,  and  that 
"  &  Co."  stood  for  A.  J.  Goss;  that  the  ostensible  firm  assumed,  by 
agreement  with  the  creditors,  nearly  all  of  the  debts  of  the  old  concern, 
and  among  them  the  debt  of  the  appellant  Lottie  Thayer,  but  did  not 
assume  the  debt  of  appellant  Davies  ;  that  the  ostensible  firm  incurred 
other  obligations ;  that  it  was  insolvent  from  the  start ;  that  J.  B.  Goss 
made  an  assignment  for  the  benefit  of  creditors,  as  did  A.  J.  Goss,  who 
was  also  insolvent ;  that  there  was  in  fact  no  firm  of  J.  B.  Goss  &  Co., 
but  that  J.  B.  Goss  was  the  sole  owner  of  the  business  and  its  assets. 

Makshall,  J.  (After  stating  the  facts  substantially  as  above.)  Now 
in  this  situation  can  the  creditors  of  J.  B.  Goss,  doing  business  as  J.  B. 
Goss  &  Co.,  who  were  so  circumstanced  as  to  be  entitled  to  hold  J.  B. 
Goss  and  A.  J.  Goss  liable  as  members  of  an  ostensible  firm,  .  .  . 
prove  their  claims  pari  passu  with  the  individual  creditors  of  A.  J.  Goss 
in  his  assignment  ?  Also,  can  the  creditors  of  the  firm  of  J.  D.  Putnam 
&  Co.  so  prove  ? 

This  presents  interesting  questions  of  law,  some  of  which  have  not 
heretofore  been  presented  to  or  decided  by  this  court, — questions 
upon  which  there  is  such  conflict  of  authority  in  this  country  that  the 
true  rule  to  be  adopted  has  not  been  arrived  at  without  difficulty,  and 
then  not  with  the  unanimous  decision  of  the  court,  which  is  to  be 
regretted.  Nevertheless,  after  careful  consideration  of  the  state 
of  the  law  as  held  by  the  courts  of  this  country  and  of  England 
as  well,  we  have,  as  we  believe,  reached  a  conclusion  thoroughly 
grounded  in  the  well-recognized  principles  of  equity  jurisprudence, 
which  should  be  applied  in  the  progressive  spirit  that  ever  has 
and  should  ever  characterize  the  growth  and  application  of  such 
principles.  They  should  not  only  not  be  lost  sight  of,  but  they  should 
not  be  fenced  in  and  restricted  within  such  narrow  limits  as  to  lead 
to  a  suspicion  of  their  correctness,  but  should  be  applied  on  such 
well-defined  lines  as  to  leave  no  doubt  in  respect  to  their  true  char- 
acter and  scope. 

There  are  several  propositions  of  law  that  apply  which  are  well 
established,  —  too  well  to  need  to  be  more  than  stated,  —  among  which 
are  these :  that  the  assets  of  an  insolvent  partnership,  in  insolvency 
proceedings,  must  be  applied  first  to  the  payment  of  the  partnership 
debts;  that,  generally  speaking,  partnership  creditors  cannot  prove 
in  competition  with  the  individual  creditors  of  a  partner;  that  the 
fixed  rule  is  that  joint  estate  must  go  to  joint  creditors,  and  separate 
estate  to  separate  creditors,  though  the  former  may  prove  pari  passu 
with  separate  creditors,  when  there  is  no  living  solvent  partner  and 
no  partnership  assets.  Now,  in  this  case,  there  is  no  solvent  partner. 
J.  D.  Putnam,  J.  B.  Goss,  and  A.  J.  Goss  are  all  insolvent.     So,  keep- 


s 


4.]  PARTNER   BY   ESTOPPEL.  119 


ing  in  mind  the  above  stated  propositions  of  law,  the  vital  question 
is :  Are  there  any  partnership  assets  to  which  appellants  can 
resort?  If  there  are  such,  then  the  foundation  stone  upon  which 
they  construct  their  claim  of  right  to  share  pari  passu  with  the 
individual  creditors  of  A.  J.  Goss.  disappears. 

On  that  subject  we  shall  not  attempt  to  harmonize  the  large  number 
of  cases  that  can  be  found  in  this  country.  The  simple  question  of 
whether,  when  there  is  an  ostensible  linn,  by  holding  out  to  creditors 
generally,  the  property  of  such  firm  is  to  be  considered,  in  equity. 
joint  property  for  the  administration  thereof,  in  insolvency,  the  same 
as  if  such  property  belonged  to  a  firm  in  fact,  is  the  key  to  the  situation. 
That  it  ought  to  be  so  considered  is.  we  assume,  too  clear  for  argu- 
ment ;  that  is  to  say,  if  A.  and  B.  do  business  with  persons  generally 
as  A.  &  Co.,  and  incur  liabilities  to  such  persons,  who  deal  in  good 
faith,  believing  that  there  is  a  firm  in  fact  as  well  as  in  name,  and  under 
such  circumstances  that  they  have  a  right  to  believe  it  is  composed 
of  A.  and  B.,  and  the  business  becomes  insolvent,  the  property  of 
the  ostensible  firm  should  be  considered,  to  all  intents  and  purpos 
in  regard  to  the  administration  of  the  business  in  insolvency,  under 
the  control  and  direction  of  a  court  of  equity,  the  same  as  if  they  were 
partners  in  fact.  The  doctrine  that  estops  B.  from  saying  that  he 
is  not  a  partner  of  A.  at  the  suit  of  the  creditors  of  the  ostensible 
firm,  should  estop  A.  from  holding  that  the  property  is  his  individual 
property,  to  the  prejudice  of  those  who  dealt  witli  the  firm  as  a  firm  in 
fact,  and  should  estop  the  creditors  of  the  ostensible  firm,  in  the  case 
of  the  bankruptcy  of  such  firm,  from  resorting  primarily  to  the  indi- 
vidual property  of  the  members  of  such  firm;  in  short,  should  work 
effectual!}-  to  compel  liquidation  in  all  respects,  the  same  as  if  the 
members  of  such  firm  were  just  what  they  seem  to  be.  This  is  what 
the  doctrine  of  estoppel  is  for  ;  that  is  what  equity  is  supposed  to 
accomplish, — to  prevent  fraud  and  promote  justice  between  man  and 
man  in  the  administration  of  human  affairs.  And  we  are  therefore 
prepared  to  find  that  such  is  the  law  as  substantially  declared  by 
the  Court  of  Appeals  in  Chancer}7  of  England. 

(Be  Rowland  and  Crankshaw,  1  Ch.  App.  421,  and  Ex  parte  Sheen 
(In  re  Wright),  6  Ch.  Div.  235,  were  discussed,  and  the  judge  con- 
tinued.) In  Ex  parte  Hayman  (In  re  Pulsford),  8  Ch.  Div.  11.  the 
question  again  came  before  the  Court  of  Chancery,  on  appeal  from 
the  chief  judge  in  bankruptcy,  and  In  re  Rowland  and  Crankshaw 
was  expressly  approved.  The  case  so  clearly  covers  the  two  cases 
under  consideration  that  we  quote  liberally  from  the  opinion,  after 
stating  the  facts.  Such  facts  are  as  follows  :  Trior  and  up  to  August 
31,  bs7o,  1  layman,  Catford.  and  Pulsford  carried  on  business  as  Efay- 
man,  Pulsford,  &  Co.  On  that  date  the  firm  was  dissolved,  and  notice 
was  published  stating  the  fact.  At  the  same  time  a  letter  was  sent. 
to  each  of  the  persons  wit  I  >  whom  the  firm  had  done  business,  slating 
the   fact   of  dissolution,    and    that    thereafter    the   business   would    be 


120  PARTNERSHIP   AS    TO    THIRD    PERSONS.  [CHAP.  II. 

carried  on  by  Thomas  Pulsford,  under  the  style  of  Pulsford,  Son,  &  Co. 
Thereafter  the  business  was  so  conducted.  Tom  Pulsford,  the  son 
of  Thomas  Pulsford,  took  an  active  part  in  conducting  the  business 
up  to  the  time  the  insolvency  occurred,  when  Thomas  Pulsford  filed 
a  petition  in  bankruptcy  ;  and  on  the  suggestion  that,  on  account 
of  the  wa}'  the  business  had  been  conducted,  it  might  be  held  that  the 
father  and  son  were  partners,  a  petition  was  also  filed  by  them  as  joint 
traders.  The  creditors  resolved  upon  a  liquidation  b}-  arrangement, 
and  such  resolution  was  registered.  Hayman,  a  separate  creditor  of 
the  father,  in  respect  to  matters  outside  the  firm  of  Pulsford,  Son,  & 
Co.,  appealed  from  the  order  for  a  liquidation  of  the  business  as  that 
of  a  firm,  on  the  ground  that  there  was  no  partnership.  He  prevailed, 
and  the  registration  was  cancelled,  and  the  decree  was  not  appealed 
from.  Thereafter  the  father  and  son  signed  a  declaration  in  insol- 
vency, upon  which  Ravenscroft,  a  creditor,  presented  a  petition  alleg- 
ing that  they  had  treated  father  and  son  as  partners,  under  the  firm 
name  of  Pulsford,  Son,  &  Co.,  on  which  an  adjudication  was  made 
against  them  by  consent.  Hayman  then  appealed  to  the  court  to 
annul  the  adjudication.  On  this  application,  following  In  re  Rowland 
and  Crankshaw,  the  application  was  dismissed  on  the  ground  that, 
though  no  actual  partnership  had  subsisted  between  father  and  son, 
yet  the  son  had  been  held  out  as  a  partner  to  the  petitioning  creditor 
to  such  an  extent  as  to  enable  him  to  maintain  the  adjudication.  This 
decision  was  not  appealed  from.  Hayman  then  applied  to  the  court 
for  an  order  declaring  that  all,  or  such  portion  as  the  court  should 
think  proper,  of  the  estate  which  appeared  in  the  acts  of  the  bankrupts, 
or  either  of  them,  as  joint  estate,  formed  part  of  the  separate  estate 
of  the  father,  and  for  a  direction  that  the  trustee  should  treat  the 
same  accordingly  as  separate  estate  of  the  father.  Hayman  was  the 
only  separate  creditor;  that  is,  creditor  outside  those  of  the  business 
of  Pulsford,  Son,  &  Co.  On  the  hearing,  the  evidence  showed  that 
substantially  all  the  creditors  did  business  with  Pulsford,  Son,  &  Co. 
as  a  firm  consisting  of  the  father  and  son,  though  it  appeared  that 
the  father  was  the  actual  owner  of  the  business,  and  that  there  was 
no  firm  in  fact.  Hayman's  application  was  refused,  and  he  appealed. 
On  the  hearing  of  this  appeal  in  the  chancer}'  division  of  the  High 
Court  of  Justice,  James,  L.  J.,  propounded  to  appellant's  counsel  the 
following  interrogatory  :  "  If  I  go  to  a  shop,  and  find  the  names 
Thompson  &  Jones  on  the  door,  and  I  go  in,  and  find  Thompson  and 
Jones  selling  goods,  am  I  not  wai*ranted  in  believing  that  they  are 
partners?"  to  which  answer  was  made  in  effect:  "That  would  not 
change  the  nature  of  the  assets,  and  make  propert}'  which  belonged 
to  the  father  in  fact  the  joint  property  of  father  and  son," — just  as 
it  is  claimed  in  this  case,  it  will  be  observed.  Appellants  contend  that 
the  fact  of  holding  out  sufficient  to  constitute  an  ostensible  firm  of 
J.  B.  Goss  &  Co.  will  not  change  the  nature  of  the  assets  so  as  to  make 
the  individual  property  of  J.  B.  Goss  joint  propert}*,  in  equit}',  of  J.  B. 


§  4]  PABTNEB   BY   ESTOPPEL.  1-1 

Goss  &  Co.  The  positions  are  identical.  In  the  opinion  of  the  court 
this  is  answered  by  James,  L.  J.  After  reciting  the  facts  in  Be  Row- 
laud  and  Crankshaw,  as  in  Lord  Cranworth's  opinion  in  that  case,  he 
says  :  "  Every  point  of  that  judgment  applies  to  this  case,  with  this 
single  exception,  which  fact  is  in  favor  ol'  the  decision  of  the  registrar, 
that,  instead  of  the  words  used  being  '  &  Co.,'  which  is  an  ambiguous 
term,  and  might  mean  anybody  in  the  world,  the  words  are  '  l'ulsfurd, 
Son,  &  Co.'  But  it  is  said  that  this  conclusion  will  work  hardship 
to  the  appellant,  who  is  a  creditor  of  the  father  alone.  1  think  that 
is  only  one  of  those  misfortunes  which  occur  to  persons  who  deal 
with  others  who  afterwards  become  insolvent  and  become  bankrupt, 
having  partners.  The  hardship  would  have  been  exactly  the  same 
upon  Hayman  if  there  had  been  a  real  partnership  created  by  a  formal 
instrument.  The  same  consequences  would  then  have  happened  as 
happen  where  there  is  only  an  ostensible  partnership."  1  It  will  be 
distinctly  noted  at  this  point  that  the  court  makes  no  distinction 
in  the  administration  of  estates  of  an  ostensible  and  an  actual  firm  in 
bankruptcy.  The  Lord  Justice  proceeds  :  "The  rule  has  been  estab- 
lished that  joint  creditors  take  the  joint  estate,  and  separate  creditors 
take  the  separate  estate  ;  and  you  only  have  to  consider  what  is  joint 
and  what  is  separate  estate  ;  and  you  must  apply  the  rule  independ- 
ently of  the  hardship.  The  supposed  hardships  are  those  which  it 
mav  inflict  in  any  particular  case;  We  can  only  apply  the  fixed  rule 
that  that  which  is  joint  estate  shall  go  to  the  joint  creditors,  and  that 
which  is  separate  estate  shall  go  to  the  separate  creditors." 

The  reasoning  of  these  cases  is,  in  our  opinion,  unanswerable,  and 
we  deduce  therefrom  the  principle  of  law  that,  if  a  person  allows 
another  to  carry  on  business  in  such  a  way  as  to  amount  to  a  holding 
out  to  persons  generally  that  he  and  such  other  are  partners,  and  credit 
is  given  to  both  on  the  supposition  that  they  are  partners  in  fact,  the 
property  with  which  such  business  is  carried  on,  though  in  law  that  of 
such  person,  in  equity  will  be  treated  as  the  joint  property  of  such 
person  and  such  other  ;  and  neither  of  them,  nor  the  creditors  of  either, 
can  prove  up  in  insolvency  in  competition  with  the  creditors  who  have 
trusted  the  two  as  partners  and  the  business  as  that  of  the  two.  To 
t'.ie  same  effect  is  Van  Kleeck  v.  McCabe,  87  Mich.  599.  Applying 
the  law  thus  stated  to  the  question  under  consideration,  the  conclusion 

1  The  Lord  Justice  added  :  "  What  is  joint  estate  ami  what  is  separate  estate  is  also 
affected  by  the  doctrine  of  reputed  ownership.  It  is  said  that  that  doctrine  does  not 
apply  to  a  case  of  tins  kind.  I  am  of  the  opinion,  however,  that  that  doctrine  was 
n-ally  the  foundation  of  Lord  Cranworth's  judgment,  In  re  Rowland  and  Crankshaw, 
!..  B.  2  <l  B.  474.    And  Thesiger,  L.  J.,  said  :  '  I  do  qoI  Bee  how  upon  any  doctrine  "f 

ostensible  partnership  founded  on  estoppel,  there  can  be  a  greater  right  in  tl ie 

case' (of  joint  creditors)  'than  in  the  other'  (of  separate  creditors).  But  if  the 
difference  is  founded  on  the  doctrine  of  reputed  ownership,  then  it  Beema  to  me  con- 
sistent with  .all  the  authorities  that  the  estates  Bhould  be  treated  as  joint  estate,  and 
that  a  separate  creditor  should  have  no  right  to  come  into  competition  with  the  joint 
creditors."  —  El>. 


122  PARTNERSHIP   AS    TO    THIRD    PERSONS.  [CHAP.  II. 

is  easily  reached  that,  while  there  are  no  firm  assets  at  law  of  the 
ostensible  firm  of  J.  B.  Goss  &  Co.,  all  the  property  used  by  J.  B.  Goss 
in  conducting  the  business,  in  equity,  is  the  joint  property  of  such 
ostensible  firm,  and  to  it  all  the  creditors  of  such  ostensible  firm  can 
resort,  the  same  in  all  respects  as  if  there  had  been  a  firm  in  fact. 

This  effectually  disposes  of  the  appeal  of  appellant  Lottie  Thayer, 
though  it  is  as  effectually  ruled  by  the  law  applicable  to  the  Davies 
appeal,  as  will  appear  by  what  follows.  Appellant  Davies  never  became 
a  creditor  of  J.  B.  Goss,  or  of  J.  B.  Goss  &  Co.,  by  any  agreement  to 
which  he  was  a  party  ;  and,  while  his  appeal  presents  the  question  of 
whether  there  is  any  joint  property  to  which  he  can  resort,  such  ques- 
tion involves  a  different  question  from  the  one  discussed  as  particularly 
applicable  to  the  Thayer  appeal. 

We  must  start  the  discussion  of  the  Davies  appeal  with  the  proposi- 
tions of  law  ■ —  in  respect  to  which,  though  there  is  some  conflict,  they 
are  too  well  established  by  the  great  weight  of  authority  to  be  ques- 
tioned by  this  court  —  that  partnership  creditors  have  no  lien  on  the 
partnership  assets  independent  of  the  equity  of  the  partners,  but  must 
work  out  their  preference  over  the  individual  creditors  of  the  members 
of  the  partnership  through  the  equities  of  such  members  ;  that,  so  long 
as  the  equity  of  the  individual  members  of  the  partnership  exists  to  have 
the  partnership  property  applied  to  the  partnership  debts,  the  creditors 
have  the  equity  to  compel  its  enforcement ;  that  if  one  member  sells 
his  interest,  bona  fide,  to  his  co-partner  or  a  stranger,  without  in  any 
way  retaining  his  equity  to  have  the  partnership  creditors  paid  out  of 
it,  the  joint  property  is  thereby  converted  into  the  individual  property 
of  the  purchaser.  The  question  to  be  determined  is,  in  view  of  the 
facts  that  the  sale  was  made  by  Putnam  in  consideration  of  the  debts 
of  the  partnership  being  paid  ;  that  the  firm  was  insolvent  at  the  time  ; 
that  the  whole  transaction  was  really  made  by  him  to  relieve  himself 
from  the  partnership  liability  ;  that  the  property  was  put  into  the  pos- 
session of  J.  B.  Goss  for  the  purpose  of  continuing  the  same  business 
with  the  same  assets,  and  effect  a  settlement  of  the  old  partnership 
affairs,  —  all  of  which  clearly  appears,  —  can  it  be  held  that  the  equitable 
title  to  the  property  was  changed,  so  as  to  affect  the  equitable  right  of 
Putnam  to  have  the  creditors  of  the  old  firm  paid  out  of  it,  or  were  the 
equitable  rights  of  the  outgoing  partner  and  the  creditors  preserved  by 
reason  of  the  facts,  and  the  assets  in  the  hands  of  J.  B.  Goss  impressed 
with  a  trust  to  carry  out  the  intention  of  the  parties  ? 

In  discussing  these  questions,  full  effect  should  be  given  to  the  sig- 
nificant controlling  words,  in  the  rule  correctly  stated  in  Willis  v. 
Thompson,  85  Tex.  301,  "  without  preserving  the  lien  in  any  manner." 
In  Conroy  v.  Woods,  13  Cal.  626,  it  was  held  that  where  a  sale  is  made 
by  one  partner  to  his  co-partner,  and  the  consideration  for  the  sale  is 
the  payment  of  the  partnership  debts,  the  sale  is  not  bona  fide,  within 
the  meaning  of  the  rule,  so  as  to  cut  off  the  equity  of  the  vendor  to 
have  the  property  applied  to  the  payment  of  the  partnership  debts. 


§  4.]  PABTNEB   BY   ESTOPPEL.  1-3 

Very  few  cases  can  be  found  that  go  as  far  as  the  California  court  on 
this'subject,  except  in  the  New  Hampshire  court,  which  does  so,  holding 
that  the  creditor  has  an  equitable  interest  independent  of  the  equity  of 
the  individual  partner.     In  Ex  parte  Cooper5  1    .Mont.  D.  &  D.  358, 
and  Exparte  Williams,  11  Yes.  3,  it  is  held  that  where  an  outgoing 
partner  sells  bona  fide  to  his  co-partner,  and  takes  for  his  consideration 
an  agreement  that"  the  purchaser  shall  pay  the  debts,  no  equitable  inter- 
est  hi  the   property   is  retained.     To   the   same   effect   are  Stanton   v. 
Westover,  101  N.  Y.  265;   Fulton  v.  Hughes.  63  Miss.  61  ;    Dimon  v. 
Hazard,  32  N.  Y.  65;  and  many  other  cases  that  might  be  cited.     In 
Darby  v.  Gilligan,  33  W.  Va.  246,  it  is  held  that  where  a  firm  is  insol- 
vent, if  a  partner  sells  out  to  his  co-partner,  and  the  purchas<  r  agrees 
to  pay  the  firm  debts,  the  sale  cannot  be  considered  bonafidt ,  so  as  to 
cut  off  the  equity  of  the  firm  creditors  to  be  preferred  ;  and  to  the  same 
effect  is  Olson  u.  Morrison.  29  Mich.   395.     In  the  latter  case  Olson 
and  Jones  were  partners.     Olson  sold  out  to  Morrison,  the  considera- 
tion being  that  the  vendee  should  pay  the  debts  of  the  firm.     It  suffi- 
ciently appears  that  the  firm  was  insolvent.     The  vendee  neglected  to 
comply  with  his  agreement,  and  the  creditors,  joining  with  the  vendor, 
brought  suit  to  compel  performance  of  the  agreement,  and  to  subject 
the  property  to  the  payment  of  the  partnership  debts.     Held,  that  the 
agreement  to  pay  the  debts  as  consideration  for  the  transfer  was   a 
sufficient  recognition  of  the  equitable  lien  of  the  partnership  creditors, 
tracing  the  same  through  the  equity  of  the  vendor,  to  enable  them, 
joining  with  him,  to  enforce  such  equity. 

In  Menagh  v.  Whitwell,  52  N.  Y.  146,  it  was  held  that,  as  between 
the  firm  and  its  creditors,  the  title  of  the  former  to  the  joint  property 
is  not  devested  by  any  separate  transfers  to  outside  parties   for  the 
individual  benefit  of  the  respective  vendors,  and  that,  when  there  has 
been  no  transfer   by  the  firm  as  such,  conveying  the   corpus  of  the 
property,  and  it  remains  in  specie,  though  transferred  by  the  separate 
transfers  of  the  individual  members,  it  may  yet  be  followed  and  reached 
in  the  hands  of  those    claiming   under  such    separate    transfers,   by 
creditors  of  the  firm.     This  is   upon  the  theory  that  neither  partner 
separately  has  any  interest  in  the  corpus  of  the  property ;  thai   his 
interest  is  limited  to  his  proportionate   share  of  what  remains  after 
a  settlement  of  all  partnership  obligations  and  an  accounting  between 
himself  and  his  co-partner.     A  distinction  is  drawn  in  this  case  between 
ibonafide  sale  by  one  of  a  partnership  to  two  of  his  co-partners  without 
reservation,  which,  under  the  prevailing  rule  of  Expartt  Buffin,  6  Ves. 
119,  operates  to  liberate  the  assets  from  the  partnership  liability,  and 
a  sale  made  by  one  member  of  a  firm  of  more  than  two,  to  one  of  the 
partners,  or  to  an  outside  party.     In  thai  class  of  cases  the  New  Y.-,k 
courts  have  uniformly  held,  since  Menagh  v.  Whitwell,  that  the  partner- 
ship effects  are  not 'liberated  from  the  partnership  liability.      In  th 
case,  if  it  is  held  that  the  sale  was  really  to  J.  1'..   Goss,  under  the 
New  York  rule,  the  corpus  of  the  property  never  passed  by  any  act 


124  PARTNERSHIP   AS   TO   THIRD    PERSONS.  [CHAP.  IL 

of  the  firm,  so  as  to  change  the  equitable  title  in  respect  to  creditors 
existing  at  the  time  of  the  sale. 

The  trend  of  the  New  York  cases,  since  Menagh  v.  Whitwell,  has 
been  to  extend  the  rule  which  preserves  the  equity  of  the  creditors  in 
case  of  the  sale  by  one  of  the  members  of  an  insolvent  firm,  the  pur- 
chaser assuming  the  partnership  obligations  in  place  of  the  outgoing 
partner,  whether  such  sale  is  to  a  co-partner  or  otherwise.  This  clearly 
appears  by  the  following,  from  the  opinion  in  Bulger  v.  Rosa,  119 
N.  Y.  465  :  "  The  equity  of  the  firm  creditors  cannot  be  defeated  by 
an}'  attempted  conversion  of  the  assets  of  the  insolvent  firm  into  the 
individual  assets  of  one  of  the  partners,  through  a  transfer  by  one 
partner  of  his  interest  therein  to  the  other.  In  such  a  case,  till  the 
assets  come  to  the  hands  of  a  bona  fide  purchaser,  the  same  can  be 
reached  by  the  partnership  creditors."  To  the  same  effect  are  Nord- 
linger  v.  Anderson,  123  N.  Y.  544,  and  Peyser  v.  Myers,  135  N.  Y. 
599.  In  the  latter  case  there  had  been  a  change  in  the  firm  some  time 
prior  to  the  assignment  for  the  benefit  of  creditors,  the  new  firm  not 
having  made  any  express  contract  to  pay  the  old  firm  debts.  There 
were  two  sets  of  creditors,  and,  in  discussing  the  subject  of  their  equit- 
able rights,  the  court  said  :  "  The  priority  of  the  lien  of  firm  creditors 
is  not  devested  by  the  transfer  by  an  insolvent  firm  of  the  assets  to  one 
or  more  of  the  partners,  nor  can  it  be  affected  by  any  mere  change 
in  the  personnel  of  the  firm,  as  by  the  withdrawal  of  one  partner  from 
the  firm  or  the  introduction  of  another."  .   .   . 

We  might  go  on  at  great  length,  reviewing  decisions  on  this  sub- 
ject, and  cite  numerous  authorities  where  outgoing  partners  have  been 
held  to  retain  their  equity  to  have  the  firm  debts  paid,  and  the  rights 
of  the  creditors  to  the  assets  which  have  come  under  the  control  of 
equity  have  been  worked  out  through  the  equity  of  such  partners. 
Probably  there  are  few  questions  upon  which  there  is  such  a  conflict 
of  authority  as  the  one  under  consideration  ;  but  nearly  all  are  in 
harmony  with  the  principle  that  if  the  bona  fides  of  the  transaction 
is  impeached,  or  if  the  equity  is  retained  by  agreement,  express  or 
implied,  then  the  creditors  can  enforce  such  equity.  The  conflict  chiefly 
arises  in  regard  to  what  circumstances  or  facts  are  sufficient  to  im- 
peach the  good  faith  of  the  transaction,  and  in  respect  to  what  is 
sufficient  to  show  a  contract  that  the  partnership  debts  shall  be  paid 
out  of  the  partnership  assets,  and  impress  a  trust  upon  such  assets 
for  that  purpose. 

By  the  mere  fact  of  the  dissolution  of  a  partnership  by  one  member 
selling  out  to  his  co-partner  or  to  a  stranger,  the  purchaser  or  pur- 
chasers agreeing,  as  consideration  for  the  purchase,  to  pay  the  partner- 
ship debts,  the  firm  being  insolvent  at  the  time,  no  presumption  of  a  bona 
fide  agreement  arises  which  will  operate  to  change  the  equitable  title 
of  the  property ;  and  such  agreement  must  clearly  appear  to  exist 
inconsistent  with  the  continuance  of  the  equitable  rights  of  the  partner, 
and,  through  him,  of  the  partnership  creditors  ;    else   it  is  retained. 


§  4.]  PARTNER   BY    ESTOITEL.  125 

Lindl.  Partn.  G99.  If  the  circumstances  are  such  as  to  show  that  the 
property  was  merely  transferred  for  the  purpose  of  winding  up  the 
affairs  of  the  concern,  there  being-  no  express  agreement  that  the  prop- 
erty shall  be  exclusively  that  of  the  vendee,  it  will,  in  case  of  bank- 
ruptcy, be  distributed  as  joint  estate.  Id.  699,  TOO.  This  is  upon  the 
presumption  that  such  was  the  intention  of  the  parties.  The  presump- 
tions to  be  indulged  in,  in  such  cases,  rather  go  to  support  an  implied 
agreement  to  do  what  in  equity  and  good  conscience  the  parties  ought 
to  do.  In  Sedam  v.  "Williams,  -1  McLean,  51,  and  Marsh  v.  Bennett, 
5  McLean,  117,  it  was  held  that  the  equity  was  retained  to  have  the 
partnership  creditors  paid  out  of  the  partnership  assets,  and  that  such 
assets  were  impressed  with  a  trust  for  that  purpose  by  virtue  of  an 
express  agreement.  In  lie  Dawson,  59  Hun,  239,  which  does  not 
appear  to  have  been  appealed  from  or  criticised,  it  was  held  that 
where  one  member  of  a  firm  retires,  selling  out  his  interest  to  a  third 
part}',  who  continues  the  business  with  the  remaining  partner,  with 
whom  he  enters  into  partnership,  and  the  partnership  assumes  the 
debts  of  the  previous  firm,  and  such  new  firm  becomes  insolvent,  ami 
makes  an  assignment  for  the  benefit  of  creditors,  the  property  trans- 
ferred to  the  new  firm  becomes  charged  in  equit}"  with  a  trust  for  the 
payment  of  the  debts  of  the  old  firm,  which  the  outgoing  partner  may 
enforce.  Such  holding  is  certainly  equitable  and  just  when  applied 
to  a  state  of  facts,  as  in  this  case,  which  leaves  no  room  for  doubt  but 
that  it  was  the  intention  of  all  the  parties  dealing  with  the  property  to 
preserve  and  administer  the  partnership  assets  in  the  nature  of  a  trust 
to  liquidate  the  old  debts  ;  and  to  this  extent  we  expressly  approve  of 
and  apply  it  here. 

This  does  not  in  the  least  trench  upon  the  rule  that  if  a  partner  sells 
out,  bona  fide,  his  interest  in  the  partnership  assets  and  business, 
without  in  any  manner  retaining  his  equity  to  have  the  partnership 
creditors  paid  out  of  such  assets,  he  waives  his  equity  in  that  regard, 
but  is  perfectly  consistent  with  it.  If  the  agreement  was  express  that 
the  debts  shall  be  paid  out  of  the  assets,  then  the  equity  is  retained  by 
express  contract ;  if  the  circumstances  of  the  transaction  show  that  the 
contemplation  of  the  parties  was  that  the  debts  should  be  so  paid,  then 
the  equit}'  is  retained  by  implied  agreement;  and  the  assets  are,  in  the 
administration  of  the  affairs  of  the  purchaser  in  insolvency,  as  effectu- 
ally impressed  with  a  trust  in  favor  of  the  vendor,  and,  through  him, 
the  creditors  of  the  old  partnership,  in  the  one  case  as  in  the  other. 
The  circumstances  involved  in  these  appeals  point  unerringly  to  the 
conclusion  that  it  was  the  intention  of  J.  I).  Putnam,  J.  B.  Goss,  and 
A.  J.  Goss  that  the  new  concern  of  .1.  B.  Goss  &  Co.  should  continue 
the  old  business  with  the  same  assets,  for  the  primary  purpose  of  wind- 
ing up  such  business  and  liquidating  the  debts  theretofore  contracted  in 
it  out  of  the  old  assets,  so  far  as  practicable.  Hence  the  court  below, 
sitting  as  a  court  of  equity  in  the  administration  of  the  affairs  of  A.  .1. 
Goss  and  J.  B.  Goss,  was  warranted  in  concluding  that,  the  property 


126  PARTNERSHIP    AS    TO   THIRD    PERSONS.  [CHAP.  IL 

of  J.  B.  Goss  is  impressed  with  a  trust  to  carry  out  the  intention  of  all 
the  parties  concerned  in  the  dissolution  of  the  old  firm,  and  formation 
of  the  new  concern  of  J.  B.  Goss  &  Co. ;  that  the  debts  of  the  old  firm 
should  be  assumed  by  the  new  concern,  and  be  paid  out  of  the  property 
turned  over  to  it,  and  the  operations  of  the  business,  so  far  as  this  can 
be  done  with  due  regard  to  the  equities  of  the  creditors  who  trusted 
such  new  concern. 

On  the  subject  of  whether  the  two  sets  of  creditors  —  those  of  the 
old  firm  of  J.  D.  Putnam  &  Co.,  and  those  of  the  ostensible  firm  of 
J.  B.  Goss  &  Co.  —  can  all  prove  in  the  insolvency  proceedings  of 
J.  B.  Goss,  though  that  subject  need  not  be  decided  here,  we  cite  Ex 
parte  Chuck  (In  re  Starkey  &  Whiteside),  8  Bing.  469,  an  early  Eng- 
lish case,  which  covers  the  subject ;  and,  so  far  as  we  are  able  to  find, 
it  has  never  been  criticised  or  overruled.  The  facts  were  that  S.  &  S. 
had  been  doing  business  for  some  time  as  co-partners,  and  were,  as 
such,  indebted  to  various  persons.  The}'  took  in  W.,  and  thereafter  the 
business  was  conducted  by  S.,  S.,  &  W.,  as  co-partners.  The  new 
firm  became  bankrupt,  and  there  were  creditors  of  both  the  old  and 
the  new  firm  as  well.  The  court  held  substantially  as  follows  :  "We 
are  of  the  opinion  that  the  creditors  of  S.  &  S.  and  those  of  S.,  S.,  & 
W.  should  be  admitted  to  prove  pari  passu  upon  the  joint  assets  of  the 
new  firm."  To  the  same  effect  is  In  re  Frow,  Jacobs,  &  Co.'s  Estate, 
73  Pa.  St.  459.  Foresman  sold  out  his  interest  in  an  existing  firm, 
having  creditors,  to  the  remaining  members,  who  agreed  to  pay  the 
debts.  The  vendees  continued  business  as  a  firm  with  the  same  assets 
for  a  time,  and  finally  made  an  assignment  for  the  benefit  of  creditors. 
Held,  that  the  two  sets  of  creditors  —  those  of  the  old  firm  and  those 
of  the  new  firm  —  might  prove  pari  passu  against  the  assets  of  the 
new  firm ;  that  Frow,  Jacobs,  &  Co.  were  liable  for  the  debts  as  part- 
ners in  the  firm  of  Foresman  &  Co.,  which  they  took  upon  themselves 
when  Foresman  retired  from  the  firm,  and  they  continued  the  busi- 
ness. When  Foresman  sold  out,  the  purchasers  intended  to  continue 
the  business.  They  took  all  the  assets,  and  assumed  the  debts.  The 
assets  became  the  capital  of  the  new  firm,  and  the  old  debts  became  its 
debts.  Under  these  facts,  the  court  readily  reached  the  conclusion  that 
the  creditors  of  the  old  and  of  the  new  firm  should  stand  on  an  equal 
footing  in  the  settlement  of  the  new  firm  in  bankruptcy.  To  the  same 
effect  are  In  re  Dawson,  59  Hun,  239  ;  Shedd  v.  Bank,  32  Vt.  709  ;  Filley 
v.  Phelps,  18  Conn.  294;  and  Wright  v.  Carman,  19  N.  Y.  Supp.  696. 
Held,  in  the  latter  case,  and  in  Frow,  Jacobs,  &  Co.'s  Estate,  supra, 
and  In  re  Dawson,  supra,  that  the  debts  of  the  old  became,  by  reason 
of  the  facts,  the  debts  of  the  new  firm.  To  the  same  effect  is  Peyser  v. 
Myers,  135  N.  Y.  599,  where  it  is  distinctly  held  that  if  there  is  a 
change  in  the  personnel  of  an  insolvent  firm,  and  it  subsequently  makes 
an  assignment  for  the  benefit  of  creditors,  —  there  being  an  agreement, 
express  or  implied,  at  the  time  of  the  change,  that  the  new  firm  shall 
assume  and  pay  the  old  debts,  —  the  equity  of  the  old  creditors  is  equal 


§  4.]  PARTNER    BY   ESTOrPEL.  127 

to  that  of  the  new.  There  was  no  express  agreement  in  that  case,  but 
the  court  held  that  thex-e  was  an  implied  agreement. 

This  effectually  disposes  of  all  the  questions  presented,  and  leads  to 
the  conclusion  that  neither  of  the  appellants  can  prove  pari  passu  with 
the  individual  creditors  of  A.  J.  Goss  in  his  assignment,  but  they  can 
both  prove  pari  passu  with  all  the  creditors  of  the  ostensible  linn  of 
J.  B.  Goss  &  Co.  in  the  assignment  of  J.  B.  Goss. 

This  opinion  has  been  quite  lengthy,  but  it  may  be  well  justified  from 
the  importance  of  the  questions  involved.  In  reaching  the  conclusion 
arrived  at  by  the  majority  of  the  court,  we  resort  to  cases  merely  to 
determine  what  well-defined  principles  have  been  established  appli- 
cable to  the  facts  of  the  appeals  before  us.  Having  come  to  a  satisfac- 
tory conclusion  in  that  regard,  we  endeavor  to  broadly  apply  them,  so 
as  to  satisfy  effectually  the  ends  of  justice,  which  are  obviously  the 
legitimate  ends  for  which  such  principles  have  been  worked  out  in  the 
growth  of  equity  jurisprudence.  By  so  doing,  the  assets  of  J.  B.  Goss, 
held  and  used  by  him  as  those  of  the  ostensible  firm  of  J.  B.  Goss  and 
A.  J.  Goss,  will  be  marshalled  and  administered  along  definite  lines, 
without  confusion  or  uncertainty  as  to  the  rights  of  the  various  sets  of 
creditors  and  parties  interested. 

In  order,  now  that  the  principles  of  equit}*  jurisprudence  here  ap- 
plied may  definitely  appear,  we  recapitulate  as  follows : 

1.  In  the  administration  of  the  affairs  of  a  partnership  and  of  the 
individual  members  thereof,  the  fixed  rule  must  be  applied  that  joint 
estate  goes  first  to  joint  creditors,  and  separate  estate  to  separate  cred- 
itors, with  the  exception  that  where  there  are  no  partnership  assets, 
and  there  is  no  living  solvent  partner,  partnership  creditors  may  prove 
with  the  separate  creditors  of  a  partner  in  the  settlement  of  his  estate 
pari  passu. 

2.  Partnership  creditors  have  no  "  lien,"  strictly  so  called,  on  part- 
nership assets,  but  must  work  out  their  preference  over  the  creditors 
of  the  individual  members  of  the  partnership,  through  the  equities  of 
such  members. 

3.  If  one  of  a  partnership  sells  out,  bonajide,  his  interest  to  his 
co-partner  or  to  another,  without  in  any  way  retaining  his  equity  to 
have  the  partnership  creditors  paid  out  of  the  assets,  the  property  is 
converted  into  the  individual  property  of  the  purchaser,  free  from  all 
the  equities  of  the  seller,  even  if  the  purchaser,  as  the  consideration 
for  such  purchase,  agrees  to  pay  the  firm  debts  ;  otherwise,  if  the  pur- 
chaser agrees  expressly  or  impliedly  to  apply  the  assets  to  such 
purpose. 

4.  The  word  "assets,"  used  in  No.  1,  is  not  confined  to  assets  at 
law,  but  includes  all  assets  applicable  to  the  payment  of  the  partner- 
ship debts,  under  the  well-defined  principles  for  the  administration  of 
the  affairs  of  insolvent  partnerships  under  the  direction  of  a  court 
of  equity. 

5.  Those  who  deal  with  persons  representing  themselves  to  creditors 


128  PARTNERSHIP   AS    TO    THIRD    PERSONS.  [CHAP.  II. 

generally  as  partners  in  a  certain  business  are  entitled  to  have  the 
propertj"  used  in  such  business  applied  to  the  paj-ment  of  the  debts 
incurred  in  such  business  in  preference  to  the  individual  debts  of  the 
members  of  the  partnership,  and  the  ostensible  member  of  such  part- 
nership is  likewise  entitled  to  have  the  assets  of  the  ostensible  firm  so 
applied. 

6.  If  a  member  of  an  insolvent  firm  sells  out  with  the  understand- 
ing that  the  business  is  to  be  continued  with  the  same  assets,  and  the 
purchaser  or  purchasers,  as  consideration  for  the  sale,  are  to  assume 
and  pay  the  old  debts,  and  the  circumstances  are  such  as  to  evidence 
the  fact  that  the  purpose  of  the  transaction  is  to  pay  the  old  firm  debts, 
and  to  wind  up  the  old  partnership  concern,  by  the  payment  of  the 
debts  of  such  concern  out  of  the  partnership  assets,  and  a  continuation 
of  the  business,  the  court  is  warranted  in  concluding  that  the  equity  of 
the  outgoing  partner  to  have  the  assets  of  the  firm  applied  to  the  pay- 
ment of  the  firm  debts  is  not  changed,  and  that  the  right  of  the  credi- 
tor to  enforce  it  continues. 

7.  If  one  of  the  members  of  an  insolvent  firm  sells  out  his  interest 
to  an  outside  party  or  to  his  associates,  and  thereby  a  new  firm  is 
formed,  which  assumes  the  debts  of  the  old  firm,  the  intention  of  all 
the  parties  being  that  the  new  firm  shall  continue  the  business  in  sub- 
stantially the  same  way  with  substantialby  the  same  assets,  and  that  the 
old  debts  shall  be  paid  out  of  such  business,  and  such  new  firm  subse- 
quently makes  an  assignment  for  the  benefit  of  creditors,  in  the  admin- 
istration of  the  assignment  the  creditors  of  the  old  and  the  new  firm 
may  prove  their  claim  pari  passu,  and  be  preferred  over  individual 
creditors  of  the  members  of  such  new  firm. 

By  the  Court.  The  orders  appealed  from  are  affirmed,  and  the 
sauses  remanded  for  further  proceedings  according  to  law.1 

1  In  a  dissenting  opinion, Newman,  J.,  said  (Pinnet,  J.,  concurring) :  "These  con- 
siderations seem  to  show  sufficiently  that  there  are  no  joint  assets  of  Alfred  J.  Goss 
and  James  B.  Goss,  and  so  that  the  petitioner  has  the  right  to  go  against  the  individ- 
ual assets  of  either  in  the  hands  of  their  respective  assignees.  The  case  properly  ends 
here.  This  covers  all  the  issues  tried,  and  on  which  there  was  evidence.  ...  It  may 
be  true  — it  is  not  necessary  to  question  it  — that  Alfred  J.  Goss  is  estopped,  as  against 
this  petitioner,  to  deny  that  he  was  a  partner  with  James  B.  Goss,  and  that  there  were, 
in  fact,  partnership  assets.  ...  It  is  said  that  James  B.  Goss  is  also  estopped  to 
deny  the  alleged  partnership  and  the  joint  ownership  of  the  property  used  in  it.  But 
the  court  has  not  listened  yet  to  James  B.  Goss's  side  of  that  question.  .  .  .  But  it  is 
not  verv  important  whether  James  B.  Goss  shall,  when  the  question  is  presented,  be 
held  to  be  estopped  or  not.  A  much  more  important  question  will  be  whether  his 
individual  creditors  are  estopped  from  claiming  that  these  assets,  which  are  in  the 
hands  of  his  assignee  for  their  benefit,  were  really  his  individual  assets.  No  one  ques- 
tions that  they  were  his  individual  assets  in  law,  and  they  are  his  individual  assets  in 
equitv,  unless  these  individual  creditors  are  estopped  to  claim  them  as  such.  Now, 
there  reallv  is  no  evidence  in  the  case  which  shows  the  nature  of  thes.e  debts  to  the 
individual  creditors  of  James  B.  Goss.  In  this  condition  of  the  case,  it  certainly  can- 
not be  prudent  to  decide  this  question  of  which  set  of  creditors  have  the  superior 
equity  to  these  assets." 


§  4.]  PAKTNER   BY    ESTOPrKL.  129 

BROADWAY   NAT.    BANK    v.    WOOD   et  al. 

165  Mass.  312:  43  N.  E.  100.     1S96. 

Bill  in  equity  by  the  indorsee  of  a  note  of  Harry  F.  Faden  &  Co.  for 
§2,160,  to  restrain  defendant  Wood,  as  trustee  for  creditors  of  Leather- 
bee  &  Son,  from  disposing  of  certain  property  ;  and  to  compel  him  to 
apply  such  property  to  the  payment  of  said  note. 

Robert  T.  Babson,  for  the  plaintiff. 

H.  W.  Chaplin,  for  the  defendants. 

Allex,  J.     On  the  averments  of  the  bill  it  must  be  assumed  that 
Faden  was  an  ostensible,  but  not  an  actual,  partner,  and  that  the  prop- 
erty which  the  plaintiff  seeks  to  reach  and  apply  to  the  payment  of  its 
debt  was  in  fact  owned  bv  the  two  Leatherbees.     Assuming  that  Faden 
was  and  is  personally  liable  to  the  plaintiff,  as  ostensible  partner,  on 
the  ground   of  estoppel,  it  is  contended  that  this   has  the   effect    to 
entitle  the  plaintiff,  as  a  creditor  of  the  ostensible  firm,  to  have  the 
property  which  was  in  the  possession  and  use  of  that  firm  applied  to  the 
satisfaction  of  the  creditors  of  that  ostensible  firm  in  priority  to  credi- 
tors whose  claims  are  only  against  the  two  Leatherbees.     There  are 
some  decisions  which  support  or  favor  this  view.     Kelly  v.  Scott.   I:» 
N.  Y.  595;  Hillman  v.  Moore,  3  Tenn.   Ch.   45-4;  Whitworth  v.  Pat- 
terson, 6  Lea,  119.     But  the  weight  of  authority,  and  the  better  reason, 
as  we  think,  are  the  other  way.     The  estoppel  is  a  personal  one.     An 
ostensible  partner  cannot  be  included  in  insolvency  proceedings  insti- 
tuted  by  the  actual  partners.     Hanson  v.   Paige,  3  Gray,   239.     He 
cannot  interfere  in  the  management  of  the  partnership  business  and 
obtain  an  injunction  or  a  receiver.     Nutting  v.  Colt,  7  N.  J.  Eq.   539  ; 
Kerr  v.  Potter,  6  Gill,  401.     He  has  no  lien  on  the  partnership  assets. 
.Stone  v.  Manning,  2  Scam.  530.     The  long-established  equity  of  joint 
creditors  to  be  paid  in  priority  out  of  the  joint  funds  is  usually  said  to 
be  by  wa}-  of  substitution  to  the  rights  of  the  partners  inter  sese,  and, 
where  no  such  right  exists,  then  the  creditors  have  no  such  equity. 
This  doctrine  is  so  firmly  established  that  it  is  too  late  now  to  question 
it.     Story,  Eq.  Jur.  §§  675,  1253  ;  Howe  v.  Lawrence,  9  Cush.  553,  558, 
559;  Harmon  v.  Clark,  13  Gray,  114,  121  ;  Robb  v.  Mudge,  1  1  Gray, 
534,  539  ;  Case  v.  Beauregard,  99  U.  S.  119,  125  ;  Fitzpatrick  v.  Flan- 
nagan,  106  U.  S.  648,  654  ;  Huiskamp  v.  Wagon  Co.,  121  U.  S.  310.  828  ; 
Saunders  v.  Reilly,  105  N.  Y.  12,  19,  20  ;  Brown  v.  Beecher,  120  Pa.  St. 
590,607,  608;  Washburn  v.  Bank,  19  Vt.  278;  Rice  v.   Barnard,  20 
Vt.  479  ;  Couch  man's  Adm'r  v.  Maupin,  78  Ky.  33  ;   Farley  '•.  Moog, 
79  Ala.  148;  Iron  Works  /■.  Davidson,  73  Cal.  389,  892;  Grabenhei- 
mer  v.  Rindskoff,  64  Tex.  49.      It  has  also  been  held  in  England   that, 
when  trustees  who  arc  authorized  to  carry  on  business  contract  debts, 
their  creditors  can  only  resort  to  the  trust  fund  when  the  trustees  are 
entitled  to  be  indemnified  therefrom,  and  that  the  creditors  reach  it  <>nlv 
by  being  substituted  to  the  equities  of  the  trustees.     See  ///  re  JohnsODi 

9 


130  PARTNERSHIP   AS   TO    THIRD   PERSONS.  [CHAP.  II. 

15   Ch.  Div.  548,  and   Dowse  v.  Gorton,  40  Ch.  Div.  536,  cited  in 
Mason  v.  Pomeroy,  151  Mass.  164,  167. 

In  applying  the  foregoing  doctrine  to  cases  where  a  person  is  osten- 
sibly, but  not  actually,  a  member  of  a  partnership,  and  is,  therefore, 
under  a  personal  estoppel  to  deny  hisjiability,  it  follows  that  a  creditor 
who,  by  reason  oftRTs  estoppel,  can  maintain  a  personal  action  against 
him,  cannot  extend  this  estoppel  so  as  to  bind  the  property  which  was 
in  the  possession  and  -use.  of  ..the  actual  partners.  The  ostensible 
partner  himseTFTias  no  equity  to  have  this  property  applied  to  the 
payment  of  the  claims  upon  which  he  is  liable,  and  therefore  the  cred- 
itors holding  those  claims  who  are,  merely  -subrogated  ,  to,  his  rights  and 
equities_hua.ve-.niQ.,^uclt..e.quity.  Kerr  v.  Potter,  6  Gill,  404 ;  Glenn  v. 
GlilTTMd.  1;  Reese  v.  Bradford,  13  Ala.  846;  Scull's  Appeal,  115 
Pa.  St.  141 ;  York  Co.  Bank's  Appeal,  32  Pa.  St.  446  ;  Swann  v.  San- 
born, 4  Woods,  625. 

The  res_ultis.-lhat  the  decree  sustaining  the  demurrer  and  dismissing 
the  bill  was  right. 

" ■—■ -■ --  Decree  affirmed. 


CHAPTER   III. 
the  nature  of  a  partnership. 

§  1.  The  Firm  :  Its  Members  :  Its  Name. 

BLECKLEY,    Ch.  J.,  in  DKUCKER  v.   WELLHOUSE. 

82  Ga.  129,  132.     1SSS. 

In  contemplation  of  law  there  is  no  merger  or  fusion  of  the  several 
persons  composing  a  partnership  into  a  common  and  comprehensive 
person  including  them  all.  A  firm  adds  nothing  to  population,  and  in 
this  respect  is  unlike  a  corporation,  which  augments  population  in  the 
legal,  though  not  in  the  natural,  world.  Still  the  law  does  take  note, 
on  a  wide  scale,  of  partnership  as  a  legal  entity,  and  regards  it  as  a  unit 
both  of  rights  and  obligations.  Judgment  may  be  entered  and  execu- 
tion issued  for  and  against  it.  Code,  §§  1899,  3576.  Attachment  may 
issue  against  it  as  non-resident,  Chambers  v.  Sloan,  19  Ga.  81;  De 
Leon  v.  Heller,  77  Ga.  740;  or  as  absconding,  Hines  v.  Kimball 
&  Co.,  47  Ga.  587.  It  may  be  served  with  process.  Peel  v.  Bryson, 
72  Ga.  332.  It  may  be  taxed.  Mayor  v.  Hines,  53  Ga.  616;  and 
see  many  provisions  in  the  session  laws  imposing  taxes.  It  may  lie 
insolvent.  Code,  §  1918  ;  Bennett  v.  Woolfolk,  15  Ga.  213  ;  Daniel  v. 
Townsend,  21  Ga.  155;  Pullen  v.  Whitfield,  55  Ga.  174;  Anderson  v. 
Pollard,  62  Ga.  51.  It  may  assign  its  property  to  pay  its  creditors.  .  .  . 
We  may  safely  hold  that  though  a  firm  is  impersonal  or  non-personal, 
it  is  for  some  purposes,  in  contemplation  of  law,  a  quasi  person,  having 
powers  and  functions  exercisable  by  one  of  the  partners  severally,  or  all 
of  them  jointly.  That  it  ma}-  be  a  debtor,  or  a  creditor  within  the 
meaning  of  modern  statutory  enactments,  we  have  no  question. 


MICK  v.   HOWARD. 

1  Ind.  250.     1318. 

Smith,  J.  Upon  the  trial,  the  plaintiff  gave  in  evidence  a  sealoa 
note,  filed  as  the  cause  of  action  made  by  the  defendant  in  favor  of 
11  J.  S.  Allen  and  II.  II.  Hays."  and  indorsed  "Allen  &  Hays."  The 
plaintiff  proved  that,  at  the  date  of  the  note,  and  for  about  a  year  after 
that  date,  the  payees  were  partners,  who  transacted  business  under  the 
firm  name  of  "Allen  &  Hays,"  and  that  the  indorsement  was  in  the 
handwriting  of  Allen.     This  being  all  the  evidence,  the  plaintiff  offered 


132  THE  NATURE  OF  A  PARTNERSHIP.       [CHAP.  III. 

to  read  the  indorsement  in  evidence,  but  the  court  refused  to  permit 
him  to  do  so,  and,  as  it  would  appear,  for  want  of  sufficient  proof  of 
the  assignment,  gave  judgment  for  the  defendant. 

It  is  contended  by  the  defendant  that  as  the  note  was  not  made  paj-- 
able  to  Allen  &  Hays  in  their  firm  name,  it  must  be  regarded  as  indi- 
vidual and  not  partnership  property,  and,  therefore,  that  there  should 
have  been  further  proof  that  Hays  assigned  it,  or  authorized  its 
assignment  to  the  plaintiff.  We  cannot  perceive  any  good  reason  for 
this  distinction.  A  partnership  note  or  bill  may  be  made  by  one  of  the 
partners  signing  it  for  "himself  and  partners,"  or  by  subscribing  the 
several  names  of  the  persons  composing  the  firm  or  the  firm  name. 
Chitty  on  Bills,  67.  So,  no  doubt,  a  note  may  be  made  payable  to 
partners  by  inserting  their  individual  names  in  full,  or  the  firm  name, 
and  upon  the  same  principle,  an  assignment  by  one  of  a  firm  made  in 
either  way  would  be  good.  The  case  of  Jones  v.  Mars,  2  Campb.  305, 
was  a  suit  by  indorsees  against  the  drawers  of  a  bill  of  exchange. 
The  declaration  stated  that  the  defendants  "made  their  certain  bill 
of  exchange  in  writing,  their  own  proper  hands  being  thereunto  sub- 
scribed." The  bill,  when  produced,  appeared  to  be  drawn  in  the 
defendants'  firm  name  of  "  Mars  &  Co.,"  and  it  was  held  that  this  was 
not  a  variance. 

As  there  appears  to  have  been  no  other  defect  in  the  proof,  we 
think  the  plaintiff  was  entitled  to  a  judgment  upon  the  evidence 
adduced. 

Judgment  reversed. 


WEST  et  al.  v.  THE  VALLEY  BANK. 

6  Ohio  St.  168.     1856. 

West  &  Co.  drew  a  bill  for  $5,000,  at  Cincinnati,  addressed  to 
"Taylor  &  Cassily,  New  Orleans,"  and  sold  it  to  The  Valley  Bank. 
Taylor  &  Cassily  were  a  firm  having  business  houses  in  Cincinnati  and 
New  Orleans,  —  Taylor  living  in  New  Orleans,  and  Cassilj'  in  Cincinnati, 
and  the  two  houses  keeping  distinct  accounts  with  each  other  and  with 
their  respective  customers.  The  draft  was  accepted  in  Cincinnati  by 
Cassily  for,  and  to  be  paid  by,  the  New  Orleans  house.  It  was  passed 
to  other  parties  by  the  bank,  and  was  not  paid  at  maturity.  The  bank 
took  it  up,  paid  the  holders  the  full  amount  thereof  and  6  per  cent  statu- 
tory damages ;  for  which  amount  it  brought  this  suit,  and  recovered 
judgment.  The  Ohio  statute  provided  that  upon  the  legal  protest  of  a 
bill  for  non-payment,  the  drawer,  etc.,  shall  be  subject  to  the  payment 
of  "  6  per  cent  damages  thereon,  if  drawn  on  an}"  person  or  persons,  or 
body  corporate,  within  the  jurisdiction  of  the  United  States,  and  without 
the  jurisdiction  of  this  State,"  etc.     Defendants  appealed. 


§  1.]  THE    FIRM:    ITS    MEMBERS:   ITS   NAME.  133 

Coffin  &  JTitchtll,  for  plaintiffs  in  error. 

Collins  &  Herron,  with  Allen  G.  T/uo-man,  for  defendant  in  error. 

Scott,  J.  (After  a  statement  of  the  facts  of  which  the  foregoing  is 
an  abridgment,  and  a  discussion  of  the  purpose  of  this  statute,  including 
references  to  Farmers'  Bank  v.  Brainerd,  8  Ohio.  2','2  ;  Clay  v.  Hopkins, 
3  Marsh.  488,  and  Grimshaw  r.  Bender,  G  Mass.  157,  said  :)  The  bill 
in  question  was  not  drawn  upon  the  natural  persons  composing  the 
firm  of  Taylor  &  Cassily,  but  upon  the  firm  itself,  that  ideal,  mercantile 
person  known  to  the  world  as  Taylor  &  Cassily,  to  whom  it  was  ad- 
dressed as  domiciled  at  New  Orleans  :  and  by  whom,  as  such  linn,  so 
domiciled,  it  was  accepted.  In  the  foreign  character  thus  given  to  this 
bill,  there  was  nothing  fraudulent  or  false.  The  firm  of  Taylor  &  Cassily 
have  a  distinct  branch  of  their  mercantile  house  domiciled  and  actively 
engaged  in  business  at  New  Orleans.  .  .  .  Upon  this  branch  of  the 
firm  the  bill  was  understood  to  be  drawn;  for  this  branch  it  was 
accepted  ;  at  its  place  of  business  it  had  to  be  presented  for  payment ; 
and  there  it  was  expected,  in  good  faith,  to  be  paid.  Under  these 
circumstances,  we  think  the  bill  in  question  comes  clearly  within  the 
spirit  of  the  statute;  it  was  drawn  on  a  mercantile  " person  without 
the  jurisdiction  of  this  State."  .   .   . 

Judgment  affirmed. 

Bartley,  C.  J.,  and  Swan,  Brinkerhoff,  and  Bowen,  JJ.,  con- 
curred. 


MESSNER  v.  LEWIS  et  al. 
20  Tex.  221.     1857. 

Suit  by  Lewis,  Garthwaite,  and  Grant,  partners  trading  in  New  York 
under  the  name  of  Lewis,  Garthwaite,  &  Co.,  and  in  New  Orleans 
under  the  name  of  Grant,  Lewis,  &  Co.,  against  Messner  on  three 
notes,  one  payable  to  Lewis,  Garthwaite,  &  Co.  and  two  to  Grant, 
Lewis,  &  Co.  The  answer  contained  a  demurrer  on  the  ground  of 
misjoinder.     Demurrer  overruled  ;  judgment  for  plaintiffs. 

J.  I),  cb  B.  C.  Giddings  and  A.  M.  Lewis,  for  plaintiff  in  error. 

G.  W.  Horton  and  J.  E.  Shepard,  for  defendants  in  error. 

Wheeler,  J.  It  is  no  objection  to  the  petition,  that  the  plaintiffs 
join  in  their  suit  several  demands  for  debts  contracted  with  them  by 
the  defendant  in  different  firm  names.  Tjiey  sue  in  their  individual, 
not  in  their  partnership  names  ;  and  asjbc  same  persons  were  the  parties 
to  thf  sevf'"11  "npt-mr-t-g,  if,  js  puitc  immaterial  by  what,  or  how  inany_- 
different  names_they  may  have  transacted  their  business  :  tliev  an-  si  ill 
the  same  contractin^joart^jind  the  proper  parties  to  bring_suit_ui'"ii 
their  contracts,  under  whatever  names  contracted.1 

1  A  part  of  the  opinion,  in  which  questions  of  practice  :ire  considered,  has  been 

omitted.     Cf.  Second  Nat.  liank  v.  Hurt,  'J.i  N.  V.  W-i  (18«3). 


134  THE    NATURE    OF   A   PARTNERSHIP.  [CHAP.  IIL 

Ex  parte  CORBETT.     In  re  SHAND. 

14  Ch.  D.  122.     1880. 

In  1864,  Corbett  granted  to  F.  Shand,  C.  Shancl,  A.  Shand,  and  R. 
A.  Robinson,  who  were  partners,  a  lease  of  six  rooms  in  No.  23  Rood 
Lane,  London,  for  a  term  of  nearly  fourteen  years ;  the  lessees  jointly 
and  severally  covenanting  to  pay  the  rent  and  repair  the  premises.  F. 
Shand  died,  and  the  business  was  thenceforth  carried  on  in  partnership 
by  the  other  three  lessees  in  the  same  rooms  until,  on  Aug.  12,  1875, 
they  were  adjudicated  bankrupts.  The  trustee  in  bankruptcy  disclaimed 
the  lease.  Corbett  tendered  a  proof  against  the  joint  estate  of  the 
bankrupts,  and  also  against  their  separate  estates,  for  £396  2s.  Gd. 
The  registrar  ordered  the  proof  to  be  admitted  against  the  joint  estate 
only.     The  lessor  appealed. 

Hi g  gins,  Q.  C,  and  II  A.  Gifford,  for  the  appellant. 

J.  Pearson,  Q.  C,  and  Finlay  Knight,  for  the  trustee. 

James,  L.  J.  This  23d  section  is  really  one  of  great  difficulty,  as 
are  all  the  sections  of  the  act  which  deal  with  the  peculiar  powers  given 
to  trustees  in  bankruptcy  to  interfere  with  the  rights  of  lessors  and 
other  persons.  But  I  think  we  can  see  our  way  to  decide  in  accordance 
with  the  justice  and  common  sense  of  the  matter. 

Of  course  we  Btart  with  this  fact,  that  the  trustee  wants  to  get  rid  of 
the  lease,  that  it  is  a  damnosa  hcereditas,  and,  therefore,  it  never  could 
have  been,  for  any  practical  purpose,  any  part  of  either  joint  or  separate 
estate.  It  was,  in  truth,  nothing  but  a  liability,  but,  under  the  opera- 
tion of  this  section,  the  trustee  disclaims  the  liability  so  as  to  put  an 
end  to  the  lease  as  between  the  lessor  and  the  lessees. 

Now,  independently  of  the  bankruptcy  law,  whose  lease  was  it  that 
he  was  disclaiming?  It  was  not  the  lease  of  the  firm,  because  there  is 
no  such  thing  as  a  firm  known  to  the  law.  The  firm,  as  cestuis  que 
trustent,  might  have  been  the  beneficial  owners  of  the  lease,  but  the 
legal  estate  in  the  lease  was  vested  in  three  joint  tenants,  A.,  B.,  and 
C,  who  happened  to  be  in  business  together,  and  unfortunately  hap- 
pened to  become  bankrupt.  The  trustee,  who  is  the  trustee  of  the 
joint  estate  as  well  as  of  the  separate  estates,  is  the  trustee  of  the 
property  of  A.,  B.,  and  C,  and  he  is  authorized,  although  he  may 
have  done  some  act  which  under  the  old  law  would  have  bound  him  to 
elect  to  take  the  lease,  to  disclaim  it.  He  is  authorized  to  release  the 
bankrupts  from  all  the  liability  under  which  they  would  have  been  if  the 
lease  had  not  been  surrendered.  Then  he,  under  that  statutory  power, 
surrenders  the  lease  against  the  will  of  the  lessor,  and  the  lessor  is 
obliged  to  accept  the  surrender.  For  whom  is  he  surrendering  it?  He 
is  surrendering  it  for  the  three  joint  tenants  whose  lease  it  was  ;  he  is 
surrendering  it  for  them  and  for  each  of  them.  Each  of  them  was  pos- 
sessed of  the  lease  per  my  et  per  tout.  That  being  so,  the  legislature 
has  said:  You  may,  on  behalf  of  those  persons,  surrender  the  leasa 


§  1.]  THE    FIRM:    ITS    MEMBERS:    ITS    NAME.  135 

entirety,  and  put  an  end  to  it,  as  between  the  lessor  and  the  lessee. 
The  lessor  has  certain  remedies  against  his  lessees.  lint  the  leuisla- 
ture  says  to  him,  instead  of  those  remedies,  you  may  prove  against  the 
estate  of  the  bankrupt.  Of  course  the  word  "bankrupt"  may  mean 
plural  or  singular,  or  plural  and  singular,  according  to  the  context. 
But  sect.  23  says  :  You  may  have  a  right  of  proof  against  an  estate  lor 
the  damage  you  have  sustained.  It  is  not  very  much  we  give,  but  we 
do  give  you  a  right  of  proof  for  the  aim  unit  of  the  damage  you  have 
sustained.  Against  whom  is  he  to  prove?  He  is  to  prove  against  the 
bankrupt  whose  trustee  has  disclaimed.  It  seems  to  me  that  in  this 
particular  case  no  question  of  joint  and  separate  estate  can  arise,  be- 
cause there  is  no  joint  estate  of  the  joint  contractors  so  as  to  bring  in 
the  37th  section.  There  were  four  persons  who  covenanted  jointly,  and 
there  is  no  joint  estate  of  those  four.  How  the  case  would  have  stum] 
if  the  three  bankrupts  had  entered  into  the  joint  covenant  it  is  not 
necessan"  for  me  to  sa}\  But  here  there  is  a  distinct  liability  of  each  of 
the  three  bankrupts  on  their  covenant,  and  that  liability  has  been  put 
an  end  to  by  the  act  of  the  trustee.  The  act  of  the  trustee  has  enured 
to  the  injury  of  the  lessor.  The  lessor  has  a  right  of  proof.  Against 
whom?  It  seems  to  me  it  must  be  against  the  estates  of  the  persons 
upon  whose  behalf  and  for  whose  benefit  the  lessor  has  been  made  to 
endure  this  injury,  that  is  to  say,  he  is  entitled  to  prove  against  the 
separate  estate  of  each  of  those  three  persons.  That,  as  it  appears  to 
me,  would  have  been  the  proper  order  for  the  registrar  to  make,  and 
no  proof  ought  to  have  been  admitted  against  the  joint  estate. 
Brett,  L.  J.,  and  Cotton,  L.  J.,  delivered  concurring  opinious. 


HASKIXS   v.   D'ESTE   et  al. 
133  Mass.  35G.     1882. 

W.  Allen,  J.  The  Statute  of  1877,  c.  1G3,  provides  that  "  any 
signature  to  a  written  instrument  declared  on  or  set  forth  as  a  cause  of 
action  or  ground  of  defence  or  set-off,  in  an  action  at  law.  shall  be 
taken  as  admitted,  unless  the  party  sought  to  be  charged  thereby  shall 
file  in  court,  within  the  time  allowed  for  answer,  a  special  denial  of  the 
genuineness  of  such  signature  and  a  demand  that  the  party  relying 
thereon  shall  prove  the  same  at  the  trial." 

The  two  defendants  were  sued  in  a  writ  which  describes  them  as 
"  late  co-partners  under  the  firm  name  and  style  of  D'Este  &  Co.,"  anil 
the  declaration  alleges  that  they  made  a  promissory  note  signed 
"D'Este  &  Co."  One  of  the  defendants.  McKenzie,  did  not  appear, 
the  other,  D'Este,  appeared  and  filed  a  general  denial.  The  question 
is,  whether  the  signature  is  to  be  taken  as  admitted  to  bind  D'Este,  or 
whether  it  is  only  admitted  as  the  signature  of  a  co-partnership  of 


136  THE    NATURE    OF   A   PARTNERSHIP.  [CHAP.  IIL 

D'Este  &  Co.,  and  the  plaintiff,  to  hold  D'Este,  must  prove  that  he 
was  a  member  of  the  firm  whose  signature  he  admits.  The  question  is 
precisely  what  it  would  have  been  if  both  defendants  had  appeared  and 
filed  a  general  denial  in  answer.  The  admission  is  the  same,  as  to 
those  making  it,  whether  made  by  both  defendants  together,  or  sepa- 
rately, or  by  one  alone. 

A  partnership  is  not  a  person^  cbstiniLfrom  its  members,  bke  a  cor- 
poration. A  partnership  cannot_be^sued ;  a_suit_must  be  against  the 
individuals  composing  it,  and  each  individual  standsTas  to  proof  of  his 
.liability,  asjfjie  were  sued  alone.  In  either  case,  his  personal  liability 
upon  thejoluTun^rjakin^would  haye  to  be jxtade  out,  and,  in  either 
case,  the" allegation  oTpartnership  would  but  express  the  relation  be- 
tween the_co^partnersa  and  the  relation  of  co-partners  to  aanWjthftr,  n.s 
affects  their  liability  to_third  persons,  is  simply  one  of_agency.  The 
allegation  that  a  number  of  individuals  asmembers  of  a  co-partnership 
made  a  contract,  is  only  the  allegation  that  each  of  them,  personally,  or 
by  his  agent,  made  it,  and  the  agency  is  alleged  a^d_4irj3ved^ytheco- 
"partnerslll}l   ' 

In  the  case  at  bar,  the  substantial  allegation  is  that  each  of  the  de- 
fendants made  a  joint  note  in  the  name  of  D'Este  &  Co.,  that  is,  that 
each  of  them  signed  that  name  to  the  note.  The  allegation  of  co- 
partnership amounts  only  to  a  statement  that  each  of  the  defendants 
was  authorized  to  sign  that  name  for  both,  and  that  an  agent  might  be 
authorized  to  sign  it  for  both.  This  is  the  whole  significance  of  the 
firm  name.  It  is  a  name  which  the  partners  adopted,  by  which  each 
could,  in  certain  matters,  bind  the  other  with  himself,  or  another  assent 
might  bind  both.  It  was  simply  a  convenient  abbreviation  of  their  two 
names,  and  when  used  had  the  same  effect  as  if  no  firm  name  had  been 
adopted,  and  the  name  of  each  partner  had  been  signed  in  full  as  a 
partner ;  and  it  bound  each  only  because  he  had  adopted  it  as  his 
name,  and  authorized  its  use  for  the  purposes  for  which  it  was  used. 
When  the  defendant  D'Este  admits  the  genuineness  of  the  signature, 
he  does  not  admit  it  to  be  a  mere  rlame,  —  he  admits  it  to  be  a  sign- 
manual,  the  name  of  a  person  signed,  and  the  only  question  is,  Whose 
name  does  he  admit  it  to  be?  The  answer  is  plain  ;  he  admits  it  to  be 
the  genuine  signature  of  the  persons  whose  signature  it  is  alleged  in  the 
declaration  to  be.  The  declaration  does  not  allege  that  the  firm  made 
the  note  ;  it  alleges  that  the  defendants,  D'Este  and  McKenzie,  in  the 
name  of  D'Este  &  Co.,  made,  that  is,  signed,  the  note  ;  that  it  is  the 
genuine  signature  of  both  in  the  name  they  had  adopted  for  binding 
themselves  jointly.  It  is  said  that  it  is  not  alleged  that  the  note  was 
signed  by  the  defendant  D'Este  personal!}',  and"  that  he  may  not  have 
been  one  of  the  persons  doing  business  under  the  name  of  D'Este  &  Co. 
But  it  is  alleged  that  the  two  defendants,  one  of  whom  is  D'Este,  made 
the  note  in  that  name.  If  the  allegation  had  been  that  the  defendant 
D'Este,  doing  business  in  the  name  of  John  Doe,  had  made  the  note  in 
that  name,  it  would  hardly  be  contended  that  the  genuineness  of  his 


§  1.]  THE   FIRM:   ITS    MEMBERS:    ITS   NAME.  137 

signature  would  not  be  admitted,  because  there  might  have  been  another 
person  doing  business  in  that  name  whose  signature  it  might  be  ;  nor 
because  the  signature  might  have  been  made  by  an  agent,  and  not  by 
the  defendant  personally.  The  declaration  alleges  that  the  defendants 
made  the  note.  If  the  writ  is  taken  in  connection  with  the  declaration, 
there  is,  so  far  as  the  question  in  issue  is  concerned,  only  the  further 
allegation,  in  effect,  that  the  two  defendants  held  such  a  relation  to 
each  other  that  each  had  authorized  the  other  to  bind  him  in  a  joint 
note,  by  the  name  of  D'Este  &  Co.  We  think  the  signature  is  alleged 
to  be  that  of  the  defendant  D'P^ste  ;  and  that  its  genuineness,  not  hav- 
ing been  denied,  must  be  taken  to  have  been  admitted.  See  Wilkes  v. 
Hopkins,  1  C.  B.  737;  Mahaiwe  Bank  v.  Douglass,  31  Conn.  170. 

In  the  opinion  of  a  majority  of  the  court,  the  ruling  of  the  judge, 
that  the  plaintiff  was  not  entitled  to  recover,  was,  for  these  reasons, 
erroneous. 

Exceptions  sustained. 


MILLER  v.   ROYAL  FLINT  GLASS   WORKS   et  al. 
172  Pa.  St.  70:  33  At.  350.     1895. 

Miller  entered  judgment  on  the  following  note  :  "  $826.00.  West 
Bridgewater,  Pa.,  May  7th,  1883.  One  day  after  date  we  promise  to 
pay  to  the  order  of  William  Miller  eight  hundred  and  twenty-six  dollars, 
without  defalcation,  value  received.  And  further,  we  do  hereby  em- 
power any  attorney  of  any  court  of  record  within  the  United  States  or 
elsewhere  to  appear  for  us,  and,  after  one  or  more  declarations  filed, 
confess  judgment  against  us,  as  of  any  term,  for  the  above  sum  with 
costs  of  suit  and  attorney's  commission  of  —  per  cent  for  collection 
and  release  of  all  errors,  and  without  stay  of  execution  ;  and  inquisition 
and  extension  upon  any  levy  on  real  estate  is  hereby  waived,  and  con- 
demnation agreed  to,  and  the  exemption  of  personal  property  from  le\y 
and  sale  on  an}'  execution  hereon  is  also  hereby  expressly  waived,  and 
no  benefit  of  exemption  be  claimed  under  and  by  virtue  of  any  exemp- 
tion law  now  in  force,  or  which  may  be  hereafter  passed.  Witness  our 
hand  and  seal:  Royal  Flint  Glass  Works.  [Seal.]  J.  Elsoffer,  Treas- 
urer.    [Seal.]   William  McKibben,  President." 

The  judgment  was  afterwards  opened,  and  Wagner  permitted  to  de- 
fend ;  but  his  defence  was  unsuccessful. 

J.  31.  Buchanan  and  Wm.  A.  McConnel,  for  appellant. 

T.  31.  Henry  and  Jennings  &  Wasson,  for  appellee. 

Mitchell,  J.  The  duty  of  the  prothonotary  in  entering  a  judgment 
by  confession  on  a  warrant  of  attorney,  under  the  Act  of  February  21, 
180G,  is  to  enter  it  "against  the  person  or  persons  who  executed  tin; 
same,"  but  this  does  not  restrict  him  to  the  name  or  names  appearing 
in  full  on  the  face  of  the  warrant.     If  it  did,  then  a  confession  by  a 


138  THE  NATUKE  OF  A  PARTNERSHIP.       [CHAP.  III. 

partnership  in  the  firm  name  only  could  never  be  entered  up  so  as  to  be 
a  valid  lien  against  subsequent  creditors.  York  Bank's  Appeal,  36  Pa. 
St.  458.  In  Overton  v.  Tozer,  7  Watts,  331,  the  warrant  was  signed 
"T.  C.  Smart,  Jr.,  &  Co.,"  and  was  executed  solely  by  Marshall,  one 
of  the  partners  ;  but  the  validity  of  the  judgment  was  held  to  depend 
on  the  authority  of  Marshall  to  sign  for  the  others. 

The  prothonotary,  therefore,  in  entering  the  judgment,  may  inquire 
who  are  "  the  persons  who  executed  the  warrant,"  in  the  sense  of  who 
are  the  legal  makers  of  the  instrument  liable  thereon,  even  though  they 
did  not  put  their  own  hands  to  it,  and  their  names  do  not  appear  on  its 
face.  In  the  present  case  the  note  was  made  in  the  firm  name,  which 
did  not  disclose  the  individual  names  of  the  partners.  The  plaintiffs 
attorney  filed  a  formal  declaration  against  the  partnership  by  its  title, 
and  naming  the  individual  members,  and  the  judgment  was  confessed 
by  him,  and  entered  Iry  the  prothonotary  in  this  form.  There  was 
nothing  irregular  on  the  face  of  it,  and  the  court  below  was  not  bound 
to  strike  it  off.  The  appellant  having  made  affidavit  that  the  note  was 
made,  and  the  judgment  confessed,  without  his  authoritj',  the  court 
opened  it,  to  let  in  this  defence.  This  was  all  that  appellant  was  en- 
titled to  ask.  At  the  trial  the  issue  turned  entirely  on  a  question  of  fact, 
whether  Elsoffer  and  McKibben  had  authority  from  the  appellant,  either 
at  the  time,  or  bj-  subsequent  ratification,  to  make  the  note.  That 
appellant  was  a  member  of  the  firm,  and  was  liable  for  the  original  debt 
to  the  plaintiff,  was  not  disputed.  In  Fichthorn  v.  Boyer,  5  Watts, 
159,  it  was  held  that  if  one  partner  sign  and__s^aL-an~ii^mme_nt_jn  the 
firm  name,  with  the  assent  of  the  other,  the  latter  is  as  much  bound  as 
if  he  had  signed  and  sealed  ithimself,  and  his  assent  can  be  proved  by* 
''"any  ot  the  usual  modes  of  evidence."      And   this  rule  lias  neyer  been 


departecTtroTn: — Kiuwer  v.  DiuyfiTore,  152  Pa.  St.  264.  .  .  . 

1  Judgment  affirmed.1 

1  In  Shain  v.  Du  Jardin,  38  Pac.  (Cal.)  529;  (1894),  the  court  said:  "The  conten- 
tion that  Rice  &  Co.  was  a  fictitious  name,  and  for  that  reason  they  could  not  maintain 
an  action,  needs  no  extended  comment.  A  single  individual  or  an  association  of  indi- 
viduals may  do  business  under  a  firm  name  entirely  distinct  from  the  name  or  names 
of  the  person  or  persons  composing  such  firm.  In  the  absence  of  fraud,  and  as  between 
himself  and  those  with  whom  he  deals,  a  person  may  do  business  and  execute  contracts 
under  any  name  he  chooses  to  assume.  Bell  v.  Publishing  Co.,  42  N.Y.  Super.  Ct.  567  ; 
Ex  parte  Snook,  2  Hilt.  566;  People  v.  Leong  Quong,  60  Cal.  107.  If  the  defendant 
purchased  goods  from  the  assignor  of  the  plaintiff,  who  was  doing  business  under  the 
name  of  Rice  &  Co.,  he  cannot,  in  the  absence  of  fraud,  evade  payment  by  showing 
that  Rice  &  Co.  was  not  the  true  name  of  the  party  from  whom  he  purchased." 


§  1.]  THE    FIBM  :    ITS    MEMBERS  :    ITS    NAME.  139 

DREYFUS   et   al.    v.    UNION    NAT.    BANK. 
164  111.  S3  :  45  N.  E.  40S.     1896. 

The  firm  of  Morse,  Mitchell,  &  Williams,  composed  of  Francis  E. 
Morse,  George  H.  Mitchell,  and  Frederick  ('.  Williams,  was  engaged 
in  business  in  Chicago  as  dealer  in  clocks,  jewelry,  etc.  On  May  10, 
1890,  the  three  persons  composing  said  firm,  jointly  with  two  other 
■  persons,  Mortimer  M.  Burchard  and  Edward  F.  Cragin,  purchased 
from  one  Anna  B.  Austin  a  certain  tract  of  land  in  Cook  County  for 
the  consideration  of  SI 20,000.  Of  this  amount  £.'55,000  was  paid  in 
cash,  and  the  balance,  $85,000,  by  notes,  dated  June  10,  1890,  running 
over  a  series  of  years,  and  secured  by  trust  deed  on  the  property.  For 
convenience,  the  title  was  taken  in  the  name  of  Morse,  and  he  executed 
the  trust  deed  securing  the  notes.  The  purchase-money  notes  were  each 
signed  by  all  who  were  interested  in  the  purchase,  Morse.  .Mitchell, 
and  Williams  each  signing  his  individual  name.  The  firm  name  was 
not  signed.  Cragin  subsequently  sold  his  interest  in  the  land  to 
one  Marshal],  who  in  turn  sold  it  to  the  firm  of  Morse,  Mitchell,  & 
Williams.  All  of  said  notes  were  paid,  excepting  two  of  them,  — one 
for  820,000,  and  the  other  for  310,000,  payable,  respectively,  three  and 
four  years  after  date.  These  had  been  discounted  with  the  Union 
National  Bank  of  Chicago. 

On  July  31,  1893,  the  firm  of  Morse,  Mitchell,  &  Williams  made  an 
assignment  to  Elbert  H.  Gary  for  the  benefit  of  their  creditors.  The 
Union  National  Bank  filed  a  claim  with  the  assignee,  based  on  the  two 
notes  which  it  held.  To  this  claim  the  assignee,  and  also  Henry 
Dreyfus  &  Co.  and  R.  A.  Kipling,  creditors  of  the  insolvent  firm,  filed 
objections.  Upon  a  trial  of  the  objections  m  the  county  court  of  Cook 
County,  several  propositions  of  law  presenting  the  claimant's  theory  of 
the  case  were  submitted;  but  the  court  refused  to  hold  any  of  them, 
and  refused  to  allow  the  claim  as  against  the  partnership  assets,  hold- 
ing that  the  notes  represented  an  individual  and  not  a  firm  indebtedness. 
From  that  order  the  claimant  appealed  to  the  Appellate  Court,  where 
the  judgment  below  was  reversed,  and  the  cause  remanded,  with  direc- 
tions to  allow  the  claim  against  the  estate  of  the  insolvent  firm.  To 
reverse  the  judgment  of  the  Appellate  Court  the  objectors  prosecuted 
this  writ  of  error. 

Moses,  Pnm,  &  Kennedy,  for  plaintiffs  in  error. 

Tenne,  McConndl,  &  (1offeen,  for  defendant  in  error. 

Baker,  J.  The  question  in  this  case  is  whether  or  not  the  notes 
filed  by  the  defendant  in  error  as  a  claim  against  the  insolvent  estate 
of  the  firm  of  .Morse.  Mitchell,  &  Williams  are  a  partnership  indebt- 
edness. The  defendant  in  error  insists  that  the  plaintiffs  in  error,  who 
are  objecting  to  the  allowance  of  snid  claim  againsl  the  partnership 
assets,  are  not  in  a  position  to  object  to  its  allow/nice.     This  point   in 


140  THE    NATUEE    OF   A   PARTNERSHIP.  [CHAP.  IIL 

not  well  made.  That  they  are  in  a  position  to  make  the  objection  is 
clear,  for  one  of  them  is  the  assignee  of  Morse,  Mitchell,  &  Williams, 
while  the  others  are  creditors  who  have  proved  their  claims  against  the 
insolvent  estate,  and  their  interest  therein  is  such  as  to  entitle  them  to 
protect  it  against  improper  claims.   .  .  . 

It  is  contended  in  behalf  of  the  plaintiffs  in  error,  that  the  notes  on 
which  the  defendant  in  error  bases  its  claim  represent  the  individual 
indebtedness  of  the  several  persons  whose  names  are  signed  thereto, 
and  are  not  a  proper  charge  against  the  partnership  assets.  Besides 
the  signatures  of  Burchard  and  Cragin,  the  notes  bear  the  individual 
signatures  of  Morse,  Mitchell,  and  Williams,  but  not  the  firm  name. 
The  fact  that  they  are  so  signed  is  not,  however,  necessarily  conclusive 
that  the  obligation,  in  so  far  as  Morse,  Mitchell,  and  Williams  are 
concerned,  is  not  a  firm  obligation.  Treating  the  notes  as  a  firm 
obligation  would  not  be  inconsistent  with  their  face.  To  determine  the 
fact  whether  or  not  they  are  such,  it  is  necessary  to  inquire  into  the 
nature  of  the  transaction  out  of  which  the}'  grew,  and  how  it  was 
intended  they  should  operate.  At  the  hearing,  Francis  E.  Morse,  one 
of  the  members  of  the  firm,  and  Carrie  A.  Howard,  the  book-keeper, 
were  called  as  witnesses  in  behalf  of  the  defendant  in  error,  and  they 
were  the  only  witnesses  examined.  Morse  testified  that  the  purchase 
of  the  Austin  property  was  entered  into  by  the  firm  as  a  partnership 
venture,  and  not  on  the  individual  account  of  the  three  members  of  the 
firm,  and  that  the  notes  in  controversy  were  given  in  partial  payment 
of  the  purchase  price  ;  also  that  prior  to  the  purchase  of  said  propert}', 
the  firm  of  Morse,  Mitchell,  &  Williams  had  speculated  several  times 
in  real  estate.  Both  witnesses  testified,  and  the  firm's  books  show, 
that  all  of  the  mone}-  which  was  paid  for  the  property,  and  all  that 
was  expended  in  improvements,  was  paid  by  the  firm  from  its  partner- 
ship funds ;  Burchard  and  Cragin  refunding  their  proportions.  The 
land  and  its  proceeds  were  carried  on  the  firm's  books  as  partnership 
assets,  and  the  purchase-money  notes  as  partnership  debts.  This 
evidence  was  sufficient  to  make  out  a  prima '  facie  case  for  the  defendant 
in  error,  for  it  shows  that  the  purchase  was  made  by  the  firm  for  part- 
nership profit,  and  that  the  notes  were  given  for  a  partnership  indebt- 
edness. And  the  evidence  does  not  vary  or  contradict  the  terms  of  the 
notes,  for  they  do  not  appear  on  their  face  not  to  be  an  obligation  of 
the  firm. 

The  fact  that  Mitchell's  name  did  not  appear  in  the  preliminary 
agreement  for  the  purchase  of  the  property  is  of  no  importance,  because 
it  does  appear  in  all  the  subsequent  papers  relating  thereto.  The  im- 
portant fact  is,  not  who  first  contemplated  making  the  purchase,  but 
whether  the  firm  of  Morse,  Mitchell,  &  Williams  was  one  of  the  pur- 
chasers. It  is  also  immaterial  that  the  notes  were  signed  with  the 
individual  names  of  the  persons  composing  the  firm,  instead  of  being 
signed  with  the  firm  name,  since  they  were  given  for  a  partnership 
indebtedness.     Farwell  v.  Huston,  151  111.239.     The  notes  in  question 


$  1.]  THE    FIRM  :    ITS    MEMBERS  :    ITS    NAME.  141 

were  a  proper  charge  against  the  assets  in  the  hands  of  the  assignee  of 
Morse,  Mitchell,  &  Williams,  and  its  claim  should  have  been  allowed. 
The  judgment  of  the  Appellate  Court  is  accordingly  affirmed. 

Affirm  d. 


YORKSHIRE   BANKING   CO.    v.   BEATSON   et   ai.. 
5  C.  P.  D.  109:  12  L.  T.  N.  s.  loo.     1680. 

Thesiger,  L.  J.,  read  the  judgment  of  the  court.  This  is  an  action 
brought  upon  two  bills  of  exchange  of  which  the  plaintiffs  are  the  hold- 
ers. °The  first  is  a  bill  for  £276  15s.,  dated  6th  March,  1878,  drawn  by 
R.  K.  Kelly  &  Co.  upon  and  accepted  by  Messrs.  J.  &  R.  Wilson,  pay- 
able to  the  order  of  the  drawers  four  months  after  date,  and  bearing  the 
indorsements  k' R.  K.  Kelly  &  Co.,"  "  Wm.  Beatson,"  and  "Josiah 
Carr  &  Sons."  The  second  is  a  bill  for  £184  13s.,  dated  13th  March. 
1878,  drawn  by  Josiah  Carr  &  Son,  addressed  "  Mr.  Wm.  Beatson, 
chemical  works,  Rotherham,"  and  accepted  in  the  name  wl  William 
Beatson,"  payable  to  the  order  of  the  drawers  four  months  after  date, 
and  indorsed  by  them  ;  both  bills  were  discounted  by  the  plaintiffs  upon 
the  14th  March,  1878.  The  defendants  to  the  action  are  Wm.  Beatson 
and  John  Henry  Mycock.  The  signature  "  Wm.  Beatson"  upon  each 
of  the  bills  was  the  signature  of  the  defendant  William  Beatson.  He 
has  allowed  judgment  to  go  by  default,  and  the  action  is  defended  by 
Mycock  alone,  who  disputes  his  liability  upon  either  of  the  bills. 

The   circumstances  of  the  case   are  as  follows:  Beatson  for  many 
years  prior  to  December,  1877,  carried  on  business  as  a  chemical  manu- 
facturer at  certain  works  at  Rotherham.     At  the  end  of  the  year  1873, 
and  the  beginning  of  the  year  1874,  the  plaintiffs  made  inquiries  as  to 
Beatson's  commercial  position  of  Josiah  Carr,  who  was  bringing  them 
paper  for  discount  with  Beatson's  name  upon  it ;  and  the  result  of  the 
inquiries  being  satisfactory,  they  discounted  such  paper.     Beatson  and 
Carr  had  some  trade  transactions  together,  but,  apart  from  these  trade 
transactions,  there  was  a  series  of  accommodation  transactions  carried 
out  by  accommodation  bills  between  Beatson  and  the  other  parties  to 
the  bills  now  sued  upon,  including  Carr  himself,  and  these  accommoda- 
tion bills  were  from  time  to  time  renewed.     Down  to  the  end  of  the 
year  1877  Beatson  had  no  partner ;  but  upon  the  11th  December,  in 
that  year,  a  deed  of  partnership  was  entered  into  between  him  and  the 
defendant  Mycock.     By  its  terms   the  partnership  was  to  last    for  a 
period  of  five  years,  with  power  of  continuance.     The  value  of  the  good 
will  of  the  business,  the  works  and  premises  where  the  same  was  car- 
ried on,  and  the  machinery,  plant,  and  effects  belonging  to  it.  wr.s  esti- 
mated at  £25,000,  and  Mycock  was  to  purchase  a  one-fifth  share  of  the 
business  by  the  payment  of  the  sum  of  £5,000.     The  business  was  to  be 
carried  on  under  the  style  of  "William  Beatson."     The   works  and 


142  THE    NATURE    OF   A   PARTNERSHIP.  [CHAP.  III. 

premises  were  to  remain  vested  in  Beatson,  who  was  to  stand  possessed 
of  them  for  the  purposes  of  the  partnership,  and  the  business  was  to  be 
managed  by  Beatson,  his  partner  not  being  required  to  attend  to  the 
business  any  further  than  he  should  think  fit.     By  the  11th  clause  of 
the  deed  it  was  provided  that  "  neither  of  the  partners,  without  the 
written  consent  of  the  other  first  obtained,  should,  on  the  credit  of  the 
firm,  make  any  payment,  advance,  or  other  application  of  the  moneys 
or  effects  of  the  said  partnership,  or  in  any  manner  engage  or  use  the 
same,  or  the  name  or  credit  of  the  partnership  firm,  except  on  account 
of  and  for  the  benefit  of  the  partnership,  and  in  the  usual  manner  of 
carrying  on  the  business  ;  "  and  by  the  12th  clause  it  was  provided  "  that 
neither  of  the  partners  should  lend  or  deliver  upon  credit  any  of  the 
moneys  or  effects  belonging  to  the  partnership  to  any  person  whom  the 
other  partner  should  previously  have  forbidden  to  be  trusted,  nor  with- 
out the  previous  consent  in  writing  of  the  other  partner  would  become 
bail,  surety,  or  security  with  or  for  any  person  whomsoever,  nor  make, 
give,  draw,  accept,  or  indorse  any  bond,  bill,  promissory  note,  or  other 
instrument,  or  enter  into  any  obligation  or  engagement,  or  make  any 
default  whereby  the  estate  and  effects  of  the  partnership  might  be  made 
liable  for  the  payment  or  satisfaction  of  any  sum  of  money  for  which 
the  partnership  should  not  have  received  a  full  and  sufficient  considera- 
tion."    The  object  with  which  Mycock  entered  into  this  partnership  was 
that  of  ultimately  putting  his  son,  who  was  then  under  age,  into  it,  and, 
as  a  matter  of  fact,  Mycock  never  interfered  in  any  way  with  the  man- 
agement of  the  business,  or  occupied  any  other  position  in  connection 
with  it  than  that  of  a  dormant  partner.     Beatson  concealed  from  him 
any  information  relating  to  his  accommodation  transactions,  and  for  his 
fraud  upon  him  in  this  and  other  matters  connected  with  the  inception 
of  the  partnership  was  ultimately  prosecuted  and  convicted.    The  plain- 
tiffs never  knew  of  the  partnership  until  after  July,  1878,  at  which  date 
Beatson  was  a  bankrupt.     For  some  time  prior  to  the  formation  of  the 
partnership  Beatson  had  kept  an  account  at  the  Sheffield  and  Jtotherham 
Bank,  headed  "  William  Beatson,"  and  after  the  formation  of  the  part- 
nership that  account  was  continued  without  any  change  in  its  heading, 
and  into  this  account  Beatson  paid  all  moneys,  whether  moneys  belong- 
ing to  the  partnership  or  his  own  private  moneys ;  and  upon  it  he  drew, 
whether  for  the  purposes  of  the  business  or  his  own  private  purposes. 

Beatson  himself  was  called  as  a  witness  for  the  plaintiffs,  and  in  ad- 
dition to  proving  the  facts  already  mentioned,  gave  evidence  to  the 
effect  that  he  kept  two  cash-books,  of  which  one  was,  as  he  stated,  a 
private  book,  kept  by  him  as  manager  at  the  place  of  business,  the 
other  a  partnership  cash-book ;  that  in  the  former  he  did  not  enter  cash 
received  on  account  of  the  partnership,  but  that  in  the  latter  all  business 
payments  were  entered.  With  reference  to  his  bill  accommodation 
transactions  generally,  he  stated  that  none  of  these  were  brought  into 
the  ledger,  either  before  the  partnership  or  after ;  that  the  cash  trans- 
actions relating  to  these  accommodation  bills  were  entered  in  the  pri- 


§  1.]  THE    FIRM:    ITS    MEMBERS  :    ITS    NAME.  143 

vate  cash-book,  to  which  Mvcock  had  no  access,  and  were  never  put 
into  the  partnership  cash-book,  to  which  Mvcock  himself  might  have 
had  access.     With  reference  to  his  particular  transactions  with  Josiah 
Carr,  he  stated  that  all  trade  transactions  between  them  were  over  be- 
fore the  partnership,  and  that  as  regards  the  particular  bills  sued  on, 
they  were  bills  drawn  for  his  and  Calx's  accommodation,  not  for  Mv- 
cock's,  although  he  added  that  they  were  in  a  degree  for  the  business, 
as  one  way  of  finding  capital,  and  that  without   the   bill   transactions 
there  was  not  capital  enough  to  work  the  business,     lie  admitted  that 
Mvcock  found  the  £5,000  which  he  was  to  pay  for  his  share  in  the  busi- 
ness ;  that   he  never  told   Mvcock   that   money  was  wanted  ;  that   he 
thought  he  was  not  making  Mvcock  liable  for  any  of  the  accommodation 
bills,  whether  renewals  or  otherwise,  and  that  he  considered  them   pri- 
vate transactions,  and  did  not  enter  them  in  the  partnership  book.     He 
further  said  that  he  considered  the  bank-book  private,  and  that  Mvcock 
had  left  him  to  keep  the  banking  account  as  he  thought  proper ;  that 
the  proceeds  of  accommodation  bills  were  paid  into  the  banking  ac- 
count, and  that  out  of  such  proceeds  the  price  of  goods  supplied  to  the 
business  and  wages  were  sometimes  paid.     As  regards  the  proceeds  of 
the  bills  sued  on,  it  appeared  that  a  portion  of  them  found  their  way 
into  the  banking  account ;  but  that  upon  the  same  day  as  this  occurred 
Beatson  drew  out  more  than  he  paid  in. 

On  the  part  of  Mvcock  an  accountant  was  called  who,  upon  an  exami- 
nation of  Beatson's  books,  proved  that  apart  from  the  accommodation 
bill  transactions,  the  business  had  during  the  period  between  the  begin- 
ning of  January  and  the  end  of  May,  1878,  a  cash  balance  to  its  credit ; 
that  the  net  result  of  the  accommodation  transactions  was  to  reduce  the 
balance  ;  and  that  Beatson  had  drawn  out  for  his  own  purposes,  inde- 
pendent of  the  business,  about  £4,000.  Upon  these  facts  taken  from 
the  notes  of  Lindley,  J.,  before  whom  with  a  jury  the  case  was  tried, 
that  learned  judge  stated  to  the  jury,  as  appears  from  the  shorthand 
writer's  notes,  that  the  questions  for  them  were  :  First,  "  was  the  name 
Win.  Beatson  put  to  the  bills  to  denote  the  firm  or  to  denote  Win. 
Beatson?"  Secondly,  "  Did  the  bank  take  the  bills  as  the  bills  of  the 
chemical  works,  whoever  the  proprietors  might  be,  or  as  the  bills  of 
Win.  Beatson  only?" 

The  jury  retired,  and  upon  returning  into  court,  the  foreman  stated 
that  as  regards  the  bill  for  £484  13*.,  it  having  been  drawn  upon 
William  Beatson  at  the  chemical  works,  Rotherham,  the  jury  agreed 
that  William  Beatson's  acceptance  of  it  must  be  held  to  denote  the 
acceptance  of  the  firm  ;  but  that  as  regards  the  other  bill  they  found  no 
evidence  upon  the  point.  Upon  being  asked  by  the  learned  judge  i<» 
answer  the  question  as  regards  that  bill  according  to  their  judgment, 
the  jury  conferred  again,  and  subsequently  stated  that,  from  the  fact  <>f 
that  bill  being  put  in  connection  with  the  other,  they  might  take  it  as 
being  the  same  thing;  and  to  the  second  question  they  answered  that 
the  bank  took  the  bills  as  the  bills  of  the  chemical  works.     Upon  these 


144  THE    NATURE   OF   A   PARTNERSHIP.  [CHAP.  I1L 

findings  a  verdict  and  judgment  was  entered  for  the  plaintiffs  against 
the  defendant  Mycock. 

That  judgment  was  subsequently  set  aside  and  judgment  entered  for 
Mycock  by  the  Common  Pleas  Division,  upon  the  ground,  stated 
shortly,  that  in  a  case  where  the  name  of  an  individual  is  the  name  also 
of  a  firm,  and  that  name  is  put  to  a  bill,  the  presumption  is  that  the 
signature  is  the  signature  of  the  individual  and  not  of  the  firm  ;  that 
consequently  it  lay  upon  the  plaintiffs  in  this^case  to  displace  that  pre- 
sumption b}'  showing  that  the  signatures  to  the  bills  sued  upon  were 
respectively  the  signatures  of  the  firm,  and  that  Beatson  was  authorized 
to  use  the  firm  name  on  the  particular  occasions  and  for  the  particular 
purposes  ;  in  other  words,  that  the  bills  were  given  for  partnership 
objects  and  as  partnership  acts,  and  that  the  plaintiffs  had  failed  to  dis- 
charge the  burden  cast  upon  them.  40  L.  T.  Rep.  n.  s.  658 ;  L. 
Rep.  4  C.  P.  Div.  212.  Against  the  judgment  of  the  Common  Pleas 
Division  the  present  appeal  is  brought. 

In  support  of  the  appeal  it  is  contended  for  the  plaintiffs  either,  first, 
that  where,  as  in  this  case,  a  signature  is  common  to  an  individual  and 
the  firm  of  which  the  individual  is  a  member,  it  is  open  to  the  bona  fide 
holder  for  value  without  notice,  whose  paper  it  is,  of  a  bill  with  such  a 
signature  upon  it,  to  sue  either  the  individual  or  the  firm  ;  or,  secondby, 
that  if  this  option  is  not  open  to  the  holder,  there  is  a  presumption  that 
the  bill  was  given  for  the  firm  and  is  binding  upon  it,  at  least  where  the 
individual  carries  on  no  business  separate  from  the  business  of  the  firm 
of  which  he  is  a  member.  As  regards  the  first  of  these  two  contentions, 
we  think  that  it  is  not  a  well-founded  one. 

The  only  authoritative  sanction  to  it  upon  which  the  learned  counsel 
for  the  plaintiffs  rely  is  in  a  case  of  McNair  v.  Fleming,  which  appears 
to  have  been  decided  in  the  House  of  Lords  in  1812,  but  which  is  not 
reported  otherwise  than  in  Montague  on  Partnership,  vol.  I.  p.  37,  and 
in  the  opinion  of  Lord  Eldon  delivered  to  the  House  of  Lords  in  the 
case  of  Davidson  v.  Robertson,  3  Dow.  229,  and  which,  without  further 
knowledge  of  the  facts  of  the  case,  and  the  exact  bearing  of  the  judg- 
ment upon  them,  it  is  impossible  to  treat  as  an  authority.  Lord  Eldon 
does  not  quote  it  in  support  of  so  wide  a  proposition  as  that  under  con- 
sideration, but  as  bearing  upon  the  proposition  that  a  joint  adventure 
was  as  proper  a  partnership  as  any  other,  and  one  of  the  adventurers 
would  be  bound  b}r  the  indorsement  and  acceptance  of  the  other,  a 
proposition  which  had  been  negatived  by  one  of  the  interlocutors  of 
the  Scotch  court,  finding  that  whatever  might  be  the  case  in  a  proper 
partnership,  one  person  concerned  in  a  joint  adventure  is  not  entitled 
bv  subscribing  a  firm  to  bind  the  other.  While,  therefore,  there  is 
really  no  authoritative  sanction  for  this  contention,  there  is  abundance 
of  authority  against  it  in  the  numerous  cases  in  the  English  and  Ameri- 
can courts,  where  the  liability  of  partners  upon  a  bill  signed  in  a  name 
common  to  the  firm,  and  an  individual  member  of  it,  has  come  under 
consideration,  and   has  been  discussed,  not   upon  the  footing  of  any 


§  1.]  THE    FIKM:    ITS    MEMBERS:    ITS    NAME.  14,") 

right  of  election  on  the  part  of  the  holder  of  the  bill,  but  upon  the 
particular  circumstances  of  each  case,  and  the  presumptions  applici 
to  them,  cases  which  we  shall  have  to  refer  to  in  connection  with  the 
plaintiffs'  second  contention. 

Apart,  too,  from  authority  it  appears  to  us  manifestly  contrary  to  true 
principles  of  law  that  the  holder  of  a  bill,  bearing  upon  it  a  name  which 
prima  facie  indicates  an  individual,  and  would  naturally  lend  to  credit 
being  given  to  the  individual  alone,  should,  upon  discovery  and  proof 
that  there  is  a  firm  of  which  the  individual  is  a  member  carrying  on 
business  under  his  name,  have  the  right  of  going  against  the  (inn, 
although  at  the  same  time  that  the  proof  is  given  it  is  proved  also  that 
the  bill  was  signed  by  the  individual  for  himself  and  not  for  his  firm, 
and  for  consideration  entirely  unconnected  with  any  partnership 
purpose. 

The  second  contention  made  on  behalf  of  the  plaintiffs  is  one  of  more 
weight,  and  apart  from  the  intrinsic  importance  of  the  question  involved 
in  it,  there  is  an  additional  importance  derived  from  the  fact  that  if  the 
contention  be  correct,  it  at  least  displaces  the  ground  upon  which  the 
judgment  of  the  court  below  rests,  although  it  will  still  remain  to  be 
considered  whether  the  judgment  may  not  be  rested  upon  another 
ground.  As  a  matter  of  principle  there  is  considerable  force  in  the 
arguments  both  for  and  against  the  contention.  Against  it,  it  is  said 
that  where  a  signature  to  a  bill  is  of  a  name  which  in  itself  and  prima 
facie  indicates  an  individual,  and  would  lead  to  credit  being  given  to 
the  individual,  and  the  holder  of  the  bill  suing  upon  it  is  therefore  com- 
pelled to  give  some  proof  that  the  name  indicates  a  partnership,  it  is 
but  just  that  he  should  be  compelled  to  go  the  whole  length  of  proving, 
not  only  that  a  partnership  existed  under  the  particular  name,  and  that 
the  individual  carried  on  no  business  separate  from  that  carried  on  by 
the  firm,  but  further,  that  the  bill  was  signed  by  the  individual  as  a 
partnership  act  and  for  partnership  objects.  In  support  of  the  conten- 
tion it  is  said  that,  inasmuch  as  a  bill  of  exchange  is  ordinarily  used  as 
a  trade  instrument,  there  is  a  presumption  that  a  bill  having  upon  it  a 
name  common  to  the  firm  and  to  the  individual  is  a  trade  bill,  and 
therefore  the  bill  of  the  firm,  in  a  case  where  it  is  proved  or  admitted 
that  there  is  no  trading  in  the  name  except  by  the  firm. 

In  the  absence  of  authority  upon  this  question  our  opinion  upon  it 
would  be  in  favor  of  the  plaintiffs'  contention.  In  point  of  convenience 
and  expediency,  and  in  the  interest  of  trade,  it  has  much  to  support  it. 
The  vast  majority  of  bills  given  under  the  circumstances  supposed 
would  be  really  partnership  bills,  and  yet  it  would  be  often  difficult,  if 
not  impossible,  for  the  holders  of  such  bills  to  do  more  than  prove  that 
the  only  trade  carried  on  under  the  individual  name  was  the  trade  of  a 
partnership;  and  if  they  were  compelled  to  go  further,  and  prove  that 
the  particular  bill  was  a  partnership  bill,  the  effect  might  be  thai  in 
many  cases  dormant  partners,  and  in  some  cases  ostensible  ones  too, 
might  escape  from  just  liabilities.     On  the  other  hand,  the  partners 

10 


146  THE    NATURE    OF   A    PARTNERSHIP.  [CHAP.  IH 

sought  to  be  made  responsible  on  the  bills  would  in  most  instances  be 
able  to  prove  whether  any  particular  bill  sued  upon  was  or  was  not  a 
partnership  bill,  and  should,  as  it  appears  to  us,  at  least  have  the  onus 
of  doing  so  thrown  upon  them,  when  it  is  through  their  own  act,  in 
allowing  the  firm  name  to  be  the  same  as  that  of  an  individual  in  the 
firm,  that  difficulty  and  doubt  arise. 

But  in  the  court  below  it  was  considered  that  the  American  author- 
ities clearly  negatived  this  view,  and  that  the  weight  of  English  author- 
ity is  in  favor  of  the  American  view  of  the  law.     We  propose  then  to 
consider  first  the  English  authorities.     In  Swan  v.  Steele,  7  East,  209, 
two  persons  of  the  name  of  Wood  and  Payne  were  wholesale  grocers  in 
Liverpool,  trading  under  the  firm  name  of  Wood  &  Payne,  and  also 
carrying  on,  under  the  same  firm  name,  and  at  their  counting-house, 
the  business  of  buying  and  selling  cotton.     The  defendant  Steele  was  a 
dormant  partner  with  them  in  this  latter  business.     It  was  held  that  he 
was  liable  upon  an  indorsement  in  the  firm  name  of  a  bill  which  had 
been  paid  to  Wood  &  Payne,  for  cotton  sold  by  the  firm,  but  which  had 
been  delivered  by  them  to  provide  for  an  acceptance  in  the  firm  name 
for  sugar  supplied  to  the  grocery  business.     It  is  difficult  to  see  how 
the  case  could  have  been  otherwise  decided,  for  the  bill  sued  upon  was 
admittedly  a  bill  in  which  Steele  was  interested  as  indorser  and  holder 
with  his  partner,  and  consequently  the  indorsement  over  of  that  bill, 
although   improper  under  the  circumstances,   was  still  manifestly  an 
indorsement  in  fact  by  the  partnership  of  which  Steele  was  a  member. 
The  evidence  showed  what  the  facts  were,  and  the  judgment  of  Lord 
Ellenborough  assumed  that  the  indorsement  was  in  the  name  of  the 
partnership  of  which  Steele  was  a  member,  and  upon  that  assumption 
decided  that,  in  the  absence  of  all  fraud  on  the  part  of  the  indorsee, 
such  indorsement  would  bind  all  the  partners.     Emly  v.  L}'e,  15  East, 
6,  which  is  commented  on  in  the  judgment  of  the  court  below  as  an 
authorit}-  in  favor  of  the  defendant  upon  the  point  under  consideration, 
has  really  no  bearing  upon  it.     There,  in  an  action  upon  several  bills  of 
exchange,  and  for  mone}'  had  and  received,  it  was  attempted  to  make 
the  defendant  liable,  either  upon  the  bills  or  in  respect  of  the  money 
received  upon  the  discount  of  the  bills,  which  was  applied  to  partnership 
purposes,  where  the  signature  upon  the  bills  was  not  in  the  firm  name, 
which  was  George  Lye  &  Son,  but  in  the  name  of  E.  L.  Lye,  which  was 
the  individual  name  of  the  partner  signing.     The  counts  upon  the  bills 
were  upon  the  argument  abandoned,  as  it  was  obvious,  as  Lord  Ellen- 
borough  said  in  his  judgment,  that  "  on  a  bill  of  exchange  drawn  by 
one  only  it  cannot  be  allowed  to  supply  by  intendment  the  names  of 
others  in  order  to  charge  them  ; "  and  it  was  held  that  on  the  mere  dis- 
count of  the  bill  no  right  could  arise  against  the  defendant  by  reason  of 
the  proceeds  being  used  for  partnership  purposes,  in  other  words  that 
the  transaction  was  nothing  more  than  a  purchase  of  the  bills  from  the 
signing  partner. 

The  case  of  Ex  parte  Bolitho,  1  Buck.  100,  is  claimed  as  an  authority 


§    1.]  THE    FIRM:    ITS    MEMBERS:    ITS    NAME.  147 

for  the  defendant.     There  Peter  Blackburn  was  a  secret  partner  in  a 
business  carried  on  by  Isaac   Blackburn   in  his  own  name,  and  was 
sought  to  be  made  liable  as  drawer  in  respect  of  bills  drawn  in  the 
name  of  Isaac   Blackburn  by   Isaac  himself.     Upon   the   affidavits  it 
appeared  that  Peter  Blackburn  also  carried  on  a  separate  business,  and 
that  after  Isaac  Blackburn   had  drawn  and  indorsed    the    bills    Peter 
Blackburn  indorsed  them  also  with  his  own  name  for  the  purpose  of 
orettin°-  them  discounted.     The  Lord  Chancellor  stated  that  it  was  im- 
possible  for  him  upon  the  affidavits  to  decide  between  the  parties,  and 
that  this  case  must  be  sent  to  a  court  of  law  for  its  deliberation,  and  he 
directed  an  issue  whether  the  two  Blackburns  were  jointly  liable  upon 
all  or  any  of  the  bills.     In  the  course  of  his  judgment,   however,   he 
said  :  "If  the  money  is  advanced  to  A.  and  B.,  and  the  lender  takes  a 
bill  from  one  of  them  only,  he  cannot  maintain  an  action  upon  the  bill 
against  the  two.     Now  if  A.  and  B.  are  partners  and   also  separate 
traders,  and  A.  draws  a  bill  and  indorses  it  in  his  own  name,  and  B. 
also  indorses  it,  and  they  become  bankrupts,  what  is  there  to  prevent  a 
holder  of  a  bill  from  proving  against  the  separate  estate  of  each   of 
them?     And  unless  you  can  show  that  when  A.  drew  the  bill  he  drew 
it  not  as  A.  but  as  A.  and  B.,  there  can  be  no  legal  contract  upon  the 
bill  as  against  the  two."     In  these  remarks  of  Lord  Eldon,  the  intro- 
duction of  the  element  of  separate  trading  by  A.  and  B.,  and  of  the 
further  element  of  both  A.  and  B.  putting  their  names  to  the  bills,' so 
differs  Lord  Eldon's  supposed  case  from  the  case  we  are  considering  of 
a  bill  signed  in  a  name  common  to  a  firm,  and  an  individual  member  of 
the  firm,  where  there  is  no  trading  separate  from  the  trading  of  the 
firm,  and  no  signature  to  the  bill  but  that  of  the  common  name,  that 
Ex  parte  Bolitho  appears  to  us  rather  to  support  the  contention  of  the 
plaintiffs'  counsel  than  to  assist  the  defendant  My  cock.      The  case  of 
the  Bank  of  South  Carolina  v.  Case,  8  B.  &  C.  427,  was  one  in  which 
three  persons  carried  on  business  in  partnership  in  England  under  the 
firm  name  of  Crowder,   Clough,  &  Co.     One  of  the  partners— J.  B. 
Clough  —  was  sent  out  to  America  to  form  a  branch  house,  which  he 
did  form,  under  his  own  individual  name.     He  was  restricted  under  the 
partnership  articles  from  transacting  any  business  in  America  except 
on  the  partnership  account;  and  as  a  matter  of  fact,  as  appears  from 
the  report,  p.  432,  he  had  no  individual  business,  and  the  name  of  J.  B. 
Clough  was  never  used  by  him   in  trade,  or  in  drawing,  indorsing,  or 
accepting,  or  negotiating  bills  of  exchange,  except  for  the  benefit  and 
on  account  of  the  partnership.      Under  the  circumstances  it  was  held 
that  all  the  partners  were  liable  as  indorsers  in  respect  of  certain  bills 

indorsed  by  Clough  in  the  name  of  J.  B.  Clough,  and  which  were  t - 

nected  with  partnership  transactions,  although  Clough  in  indorsing  them 
disregarded  certain  specific  instructions  given  him  by  his  partners,  and 
exceeded  his  authority.  It  is  not  necessary  to  discuss  whether  the 
doubts  raised  byCrompton,  J.,  in  Nicholson  v.  Ricketts,  2  E.  &  ••• 
497,  as  to  the  correctness  of  this  decision  arc  or  are  not  well  founded 


148  THE    NATURE    OF   A    PARTNERSHIP.  [CHAP.  in. 

It  is  sufficient  for  our  present  purpose  to  say  that  the  decision  pro- 
ceeded upon  all  the  facts  of  the  case,  and  not  upon  any  doctrine  as  to 
presumption  or  burden  of  proof. 

But  the  case  of  Furze  v.  Sharwood,  2  Q.  B.  388,  is  a  distinct  author- 
ity upon  the  point  under  consideration.     There  a  business  was  carried 
on  by  trustees  for  creditors  in  the  name  of  Samuel  Maine,  one  of  the 
persons  who  had  previously  carried  it  on  in  partnership.     Maine  had 
also  for  a  time  a  separate  business  of  his  own.     The  plaintiff  had  dis- 
counted for  the  old  partnership,  and  also  had  been  accustomed  to  lend 
Maine  money  for  the  purposes  of  his  private  business.     Maine  after  a 
time  sold  his  separate  business  and  ceased  to  carry  it  on,  and,  having 
subsequently  indorsed  bills  in  the  name  of  "  Samuel  Maine,'"  one  of 
which  had  been  discounted  by  the  plaintiff,  and  was  sued  on,  and  the 
proceeds  of  which  were  placed  to  his  credit  at  his  bankers,  and  were 
drawn  upon  indiscriminately  for  the  purposes  of  the  business  to  which 
he  was  agent,  and  for  his  own  private  purposes,  the  trustees  were  held 
liable,  as  indorsers,  and  Lord  Denman,  C.  J.,  in  delivering  the  judg- 
ment  of  the    court,    said:    " Prima  facie;   therefore,   the   signature 
Samuel   Maine  was  their  signature,  and  they  would  be  bound  by  it. 
But  it  is  said  that  Maine   carried  on  a  separate  business  of  his  own, 
and  that  the  plaintiff  was  bound  to   show   that  the    indorsements  in 
question  were  on  account  of  the  business  of  the  trustees,  and  not  on 
account  of  his  separate  business.     Now  it  appears  that  the  bills  were 
discounted  with  persons  who  were  in  the  habit  of  discounting  for  the 
former  firm  who  assigned  their  effects  to  the  defendants  as  trustees, 
and,  moreover,  that  the  bills  in  question  were  not  discounted  till  after 
Maine  had  ceased  to  carry  on  his  separate  business.     Under  these  cir- 
cumstances we  think  that  the  onus  of  showing  that  the  indorsements 
were  made  on  account  of  the  separate  business,  and  not  on  that  of  the 
trustees,  which  was  the  general  and  ostensible  business,  lay  on  the  de- 
fendants.    Several  cases  were  cited  which  it  is  not  necessary  minutely 
to  examine  ;  it  is  sufficient  to  say  that  they  are  not  inconsistent  with 
this  view  of  the  present  case.     We  are  therefore  of  opinion  that  the 
defendants  were  bound  by  the  indorsement  of  Maine,  and  that  the  plain- 
tiff on  this  ground  of  objection  would  be  entitled  to  our  judgment." 
2  Q.  B.  at  p.  418. 

This  decision  is  in  no  way  shaken  by  that  in  Nicholson  v.  Bicketts, 
2  E.  &  E.  497,  where  two  firms  with  distinct  trade  names  agreed  to 
carry  on  joint  exchange  operations  under  such  circumstances  as  to  make 
them  partners  in  them  ;  and  it  was  held  that  the  signature  to  bills  of  one 
of  the  two  firms  drawn  in  course  of  the  exchange  operations  did  not  make 
both  firms  liable  as  drawers  ;  for  the  decision  proceeded  simply  on  the 
ground  that  by  the  arrangements  between  the  two  firms  the  names  oi 
the  two  firms  were  to  be  used  separately,  the  paper  to  be  dealt  in  being 
drawn  by  one  firm  and  accepted  by  the  other,  and  as  Cockburn,  C.  J., 
said,  at  p.  523,  it  did  not  appear  that  the  drawing  firm  had  any  author- 
ity, express  or  implied,  to  bind  the  defendant  by  drawing  bills.     The 


S  I.J  THE   FIRM:   ITs    MEMBERS:    ITS   NAME.  L49 

(.use  of  He  Adansouia  Fibre  Co.  ;  Miles'  Claim,' L.  Rep.  9  Ch.  635,  was 
substantially  the  same  as  that  of  Nicholson  v.  Ricketts,  and  was  decided 
upon  the  same  considerations.  In  each  of  these  cases  the  court  came 
to  the  conclusion,  as  a  matter  of  fact  upon  all  the. circumstances  before 
it,  that  the  name  on  the  bill  was  not  intended  to  be,  and  was  not, 
the  name  of  the  partnership  sought  to  be  made  liable  upon  it. 

Upon  this  view  of  the  English  authorities,  they  appear  to  support  the 
view  that  where  a  name  is  common  to  a  firm  and  to  an  individual  mem- 
ber of  such  firm,  and  the  individual  member  carries  on  no  business  sepa- 
rate from  that  of  the  firm,  there  is  a  presumption  that  a  bill  of  exchange 
drawn,  accepted,  or  indorsed  in  the  common  name  is  a  bill  drawn, 
accepted,  or  indorsed  for  the  partnership,  and  for  which  the  partnership 
is  liable,  and  that  it  lies  upon  the  defendants  in  an  action  against  the  part- 
ners upon  such  bill  to  get  rid  of  the  prima  facie  case  made  against  them. 

But  as  the  court  below  relies  much  upon  the  American  authorities  as 
uniformly  negativing  this  view,  and  those  authorities  have  been  much 
discussed  in  tlfe  argument  before  this  court,  we  think  it  desirable  to  refer 
to  them.  The  authorities  specially  cited  in  the  judgment  of  the  court 
below  are  Parsons  on  Bills  of  Exchange,  531  ;  Story  on  Partnership, 
106,  142  ;  the  decision  in  the  Supreme  Court  of  New  York  of  Oliphant 
v.  Mathews,  16  Barb.  608,  and  the  direction  of  Story,  J.,  to  the  jury  in 
United  States  Bank  v.  Binney,  5  Mason,  176,  185.  The  passage  re- 
ferred to  in  Parsons  does  not  bear  out  the  proposition  for  which  it  is 
cited.  He  says:  •'  The  burden  of  proof  is  upon  the  plaintiff  to  show 
that  the  paper  was  given  in  the  business,  and  for  the  use  of  the  firm, 
for  it  will  be  intended  prima  facie  to  have  been  given  in  the  separate 
business  of  the  partner  signing  it,  and  to  be  binding  on  him  alone,  at 
least  if  he  is  also  engaged  in  business  on  his  own  separate  account." 
The  views  of  Story,  J.,  are  best  taken  from  his  ruling  in  United  States 
Bank  v.  Binnej*,  where,  in  directing  the  jury,  he  used  this  language : 
"  In  the  present  case  the  signature  of  John  Winship  may  be  on  his  own 
individual  account,  as  his  personal  contract,  or  it  may  be  on  account  of 
the  partnership.  Upon  the  face  of  the  paper  it  stands  indifferent.  The 
burden  of  proof  is  upon  the  plaintiffs  to  establish  that  it  is  a  con- 
tract of  the  firm,  and  ought  to  bind  them."  But  there  was  evidence  to 
go  to  the  jury  in  that  case  that  the  partnership  was  limited  to  a  soap 
and  candle  business,  and  that  the  accommodation  notes  which  were 
sued  on  were  given  in  respect  of  consignments  of  meat,  which  might 
have  constituted,  and,  it  was  contended,  did  constitute  the  separate 
business  of  Winship.  It  is  doubtful  therefore  whether  Story,.!.,  in- 
tended his  proposition  to  extend  to  a  case  where  no  separate  business 
could  even  be  suggested  as  existing. 

On  the  other  hand,  in  the  case  of  Mifflin  v.  Smith,  17  Serg.  &  Rawle, 
165,  Rogers,  J.,  dealt  with  the  doctrine  of  presumption  in  a  case  where 
the  question  was  whether  the  loan  of  money  obtained  by  a  member  of  a 
partnership  carried  on  in  bis  individual  name  was  obtained  on  the  faith 
of  the  partnership  business,  or  on  the  credit  of  the  individual  partner, 


150  THE    NATURE    OF   A    PARTNERSHIP.  [CHAP.  III. 

and  he  laid  it  down  that  the  presumption  was  that  it  was  made  on  the 
faith  and  credit  of  the  business,  saying:  "  If  a  retail  merchant  gets  a 
note  discounted,  is  it  not  to  be  presumed  to  be  in  the  regular  prosecu- 
tion of  his  business?"  and  adding:  "The  difficulty  arises  from  the 
name  of  the  individual  and  the  name  of  the  firm  being  the  same.  That 
is  the  presumption,  liable,  however,  to  be  rebutted,  if  the  jury  believe 
from  the  evidence  that  was  not  the  state  of  the  fact."  A  motion  to  the 
Supreme  Court  of  Pennsylvania,  founded,  amongst  other  things,  upon 
the  alleged  error  of  this  direction,  was  refused.  This  case  was  decided 
in  1827.     The  case  before  Story,  J.,  was  in  1828. 

In  1845  the  question  under  consideration  again  arose  in  the  Supreme 
Court  of  New  York  in  the  case  of  Bank  of  Rochester  v.  Monteith,  1 
Den.  402,  where  the  name  of  Wm.  Monteith,  an  agent  of  the  firm, 
had  been  used  as  the  firm  name,  and  the  court  said  :  "  If  Wm.  Monteith 
had  also  been  in  business  on  his  own  account,  then  the  acceptance  by- 
writing  his  name  on  the  face  of  the  bills  would  have  been  an  equivocal 
act,  and  it  would  have  been  necessary  to  show  that  he  accepted  on 
account  of  the  partnership,  and  not  in  his  own  private  business,"  and 
after  citing  among  the  authorities  for  this  proposition  the  United 
States  Bank  v.  Binney,  thus  indicating  that  they  must  have  thought 
that  in  this  case  there  was  a  separate  business  carried  on  by  the  in- 
dividual whose  name  was  used,  the  court  added:  "  But  there  was  no 
evidence  that  Wm.  Monteith  was  engaged  in  any  other  business  than 
the  affairs  of  this  partnership.  We  must  then  regard  those  bills  as 
drawn  and  accepted  by  the  house  doing  business  in  the  name  of  Wm. 
Monteith." 

In  1853  was  decided,  also  in  the  Supreme  Court  of  New  York,  the 
case  of  Oliphant  v.  Mathews,  which  is  the  second  of  the  two  cases  cited 
in  the  judgment  of  the  court  below.  That  case,  when  critically  ex- 
amined, will  be  found  not  to  be  inconsistent  with  the  cases  of  Mifflin  v. 
Smith  and  Bank  of  Rochester  v.  Monteith.  It  is  true  that  the  court 
laid  down  in  general  terms  that  where  a  partnership  is  carried  on  in  the 
name  of  an  individual,  and  a  suit  is  brought  against  the  partners  upon 
a  note  or  other  obligation  signed  by  such  individual,  the  legal  presump- 
tion is  that  it  is  the  note  of  the  individual  and  not  of  the  partners.  The 
court  immediately  qualified  the  generality  of  the  proposition  laid  down 
by  saying  that  the  presumption  might  be  repelled  and  overcome  (in 
other  words  the  onus  of  proof  might  be  shifted)  by  proof  as  to  the  busi- 
ness in  which  such  person  was  engaged  ;  and  while  citing  Mifflin  v. 
Smith  as  explaining  what  proof  would  be  sufficient,  the  court  pointed  out 
that  in  the  case  before  them  it  was  proved  that  the  individual  did  busi- 
ness and  borrowed  money  on  his  own  account,  as  well  as  on  account  of 
the  partnership  ;  and  it  was  not  shown  that  one  was  not  as  constant  and 
regular  as  the  other.  This  case,  therefore;  is  in  no  way  inconsistent 
with  the  previous  case  decided  in  the  same  court  of  Bank  of  Rochester 
v.  Monteith,  and  none  of  the  other  cases  cited  in  the  argument  before  us 
carries  the  doctrine  of  presumption  in  favor  of  the  defendant  further. 


§  1.]  THE    FIBM:    ITS    MEMBERS:    ITS    NAME.  151 

It  appears  to  us,  therefore,  that  the  American  authorities  are  in  accord 
with  the  English  upon  the  point  under  consideration,  and  that  both  fail 
to  support  the  view  taken  by  the  court  below,  and  are  in  favor  of  the 
second  contention  urged  in  this  ease  on  behalf  of  the  plaintiffs.  Apply- 
ing then  the  presumption  for  which  the  plaintiffs  contend  to  the  circum- 
stances of  the  present  case,  the  matter  stands  thus:  The  only  business 
carried  on  in  the  year  1878  in  the  name  of  and  by  'Win.  Beatsou  was 
the  business  of  the  partnership,  and  both  the  bills  sued  upon  have  the 
appearance  of  trade  bills.  Prima /licit,  thru,  the  bills  were  bills  in- 
dorsed and  accepted  respectively  in  the  name  and  on  account  of  the 
partnership,  and  if  that  prima  facie  case  were  not  displaced,  Alycock 
would  be  liable  upon  them  to  the  plaintiffs  as  b<>,<,i  fide  holders  for 
value  without  notice,  even  though  they  were  so  indorsed  and  accepted 
for  the  private  purposes  of  Beatson,  and  in  fraud  of  his  partner.  The 
nature  of  the  partnership  business  was  such  as  to  give  Beatson  in 
respect  to  persons  dealing  with  him  in  business  an  implied  authority  to 
bind  his  partnership  by  bills  of  exchange,  and  his  partner,  although  a 
secret  one,  must  be  held  responsible  upon  any  bill  signed  by  Beatson 
in  the  name  of  the  firm  in  favor  of  a  holder  whose  title  cannot  be  im- 
peached, however  much  Beatson  in  signing  that  name  may  have  ex- 
ceeded the  authority  and  broken  the  trust  reposed  in  him  by  the 
agreement  of  partnership.  As  was  said  hy  the  court  in  giving  judg- 
ment in  the  case  of  Wintle  v.  Crowther,  1  C.  &  J.  316:  "Where  a 
partnership  name  is  pledged,  the  partnership,  of  whomsoever  it  may  con- 
sist, and  whether  the  partners  are  named  or  not,  and  whether  they  are 
known  or  secret  partners,  will  be  bound,  unless  the  title  of  the  person 
who  seeks  to  charge  them  can  be  impeached,"  and  the  authorities  uen- 
erally,  both  English  and  American,  are  uniform  in  support  of  this  view. 

There  is  no  difference  in  this  respect  between  the  dormant  and  the 
ostensible  partner,  and  when  once  it  is  established  that  a  name  common 
to  a  firm  and  an  individual  member  of  it  has  been  put  to  a  bill  as  the 
name  of  the  firm,  there  is  no  difference  between  the  liability  of  partners 
carrying  on  business  in  such  a  name,  and  the  liability  of  partners  carry- 
ing on  business  in  a  name  which  bears  in  itself  the  stamp  and  evidence 
of  a  partnership.  It  may  perhaps  be  argued  that  in  the  latter  case  the 
bona  fide  holder  without  notice  is  induced  by  the  name  itself  to  trust  a 
firm,  and  is  therefore  entitled  to  have  all  the  responsibility  of  all  the 
members  of  that  firm,  while  an  Individual  name  would  suggest  no  re- 
sponsibility other  than  that  of  the  individual  whose  name  it  is  ;  hut  when 
it  is  remembered  that  firm  names  are  often  used  by  individual  traders, 
while  individual  names  are  often  used  by  linns,  the  argument  practically 
comes  to  nothing,  and  a  common  principle  applicable  to  both  < 
remains  alone  consistent  with  mercantile  expediency  and  general  law. 

But  assuming  that  there  is  no  difference,  as  matter  of  law,  between 
the  two  cases,  there   is  as  matter  of  evidence  a  very  real  and   very 
practical  difference.     A  name  in  itself  indicating  a  linn  does  not. 
cept  in  rare  instances,  of  which  the  case  of  Stephens  v.  Reynolds,  5  II. 


152  THE   NATUKE    OF   A   PARTNERSHIP.  [CHAP.  IIL 

&  N.  513,  is  an  example,  leave  open  any  doubt  as  to  the  meaning  of  a 
signature  in  such  name  ;  but  a  name  which  in  itself  indicates  an  in- 
dividual is,  notwithstanding  the  effect  of  any  legal  presumption,  am- 
biguous, and  there  are  likely  to  be  few,  if  any,  cases  where  the  decision 
of  the  jury  or  of  a  court  will  be  rested  upon  the  presumption  alone. 
The  present  case  is  no  exception  to  the  rule,  and  the  presumption  in 
favor  of  the  plaintiffs  arising  from  the  fact  that  Beatson  carried  on  no 
business  separate  from  that  of  the  partnership  really  sinks  into  compara- 
tive insignificance  by  the  side  of  the  additional  facts  which  are  proved  in 
the  case. 

Upon  those  facts  we  have  to  decide,  as  the  courts  in  Nicholson  v. 
Ricketts  and  He  Adansonia  Fibre  Co.,  Miles'  Claim,  were  called  upon 
to  decide,  whether  the  signature  to  the  bills  upon  which  the  dispute 
arises  was  intended  to  denote  and  did  denote  the  partnership  of  which 
•  the  defendant  was  a  member.  In  the  first  place  it  is  clear  that  the 
bills  were  bills,  which,  if  signed  by  Beatson  for  the  partnership,  were  so 
signed  by  him  without  the  authority  and  in  fraud  of  his  partner,  and  in 
respect  of  which  no  action  would  have  lain  against  Mycock,  if  the}'  had 
remained  in  the  hands  of  Josiah  Carr  &  Son,  who  took  them  with 
notice.  In  the  second  place,  it  is,  we  think,  equally  clear  that  as 
between  Beatson  and  Mycock  the  bills  were  not  treated  as  having  been 
signed  by  Beatson  on  the  partnership  account.  They  were  not  entered 
in  any  partnership  book,  and  indeed,  even  before  the  partnership  as 
wrell  as  after  it  commenced,  the  accommodation  transactions  of  Beatson 
were  treated  as  not  forming  any  part  of  the  transactions  of  his  business, 
and  were  excluded  from  the  ledger.  In  the  third  place,  the  evidence 
establishes  that  the  accommodation  transactions  of  Beatson  after  the 
commencement  of  the  partnership  diminished  rather  than  added  any- 
thing, even  temporarily,  to  the  capital  of  the  firm  ;  and,  lastly,  Beatson 
himself,  called  as  a  witness  by  the  plaintiffs  themselves,  disproved,  as 
it  appears  to  us,  the  fact  that  in  signing  the  bills  in  question  he  signed 
for  the  partnership.  He  stated  that  he  thought  he  was  not  making 
Mycock  liable  for  any  of  the  accommodation  bills,  whether  renewals  or 
otherwise,  and  that  he  considered  them  private  transactions,  and  did 
not  enter  them  in  the  partnership  books.  Can  any  other  inference  be 
reasonably  drawn  from  such  evidence  than  that  Beatson,  in  signing  the 
bills,  intended  to  sign  and  did  sign  them  for  himself?  We  think  that 
no  other  inference  ought  to  be  drawn,  and  that  the  jury,  in  finding  that 
"William  Beatson"  upon  each  of  the  bills  was  intended  to  denote 
the  firm,  gave  a  verdict  against  the  evidence,  and  one  which  ought  not 
to  stand. 

The  reason  given  in  support  of  their  finding  by  the  jury  that  one  bill 
was  addressed  to  the  drawee  or  drawees  as  of  the  Chemical  Works, 
Rotherham,  and  that  the  other  was  so  connected  with  it  as  to  stand  or 
fall  with  it,  might  have  been  a  good  reason  in  a  case  where  the  evidence 
was  in  other  respects  doubtful,  but  it  is  in  the  present  case  met  to  some 
extent  by  the  very  form  of  the  bill  itself,  which,  while  addressed  to  the 


§  1-]  THE    FIRM:    ITS    MEMBERS:    ITS    NAME.  1 ."  : 

drawee  or  drawees  at  the  partnership  works,  contains  in  the  term 
"Mr."  prefixed  to  the  name  "  Win.  Beatson"  an  indication  that  the 
individual  and  not  the  firm  was  intended,  and  is  entirely  outweighed  by 
the  clear  evidence  to  which  we  have  referred,  and  we  understand  that 
the  learned  judge  who  tried  the  case  was  himself  dissatisfied  with  the 
finding.  The  additional  finding  that  the  bank  took  the  bills  as  the  hills 
of  the  chemical  works  is  clearly  irrelevant  if  the  former  finding  is 
wrong,  for  if  the  bills  were  in  fact  signed  not  in  the  name  of  the  partner- 
ship, but  of  Wm.  Beatson  individually  and  for  his  private  purposes,  the 
fact  that  the  plaintiffs  were  unaware  that  Mycock  was  a  partner  with 
Beatson,  and  never  advanced  any  money  on  the  faith  of  his  credit,  but 
did  at  the  same  time  give  credit  to  the  name  of  Bcatsun  as  being  the 
name  of  the  owner  of  the  chemical  works,  can  give  them  no  more  right 
against  Mycock  than  if  he  had  been  a  mortgagee  of  the  works  in-: 
of  a  partner  in  them. 

The  law  in  a  case  of  bankruptcy  asserts  a  title  in  the  general  body  of 
creditors  of  a  bankrupt  to  property  of  which  he  may  have  been  at  the 
time  of  his  bankruptcy  in  apparent  possession  with  the  consent  of  the 
true  owner,  and  upon  the  faith  of  which  he  gained  a  false  credit.  But 
in  actions  founded  upon  purely  personal  contracts,  the  law  does  not  use 
the  mere  moral  right  which  a  creditor  may  attempt  to  assert  against  a 
person  in  consequence  of  his  having  intrusted  to  another  property  in 
the  belief  of  his  ownership,  of  which  the  creditor  may  have  contrai  ted 
with  him.  In  other  words,  in  a  case  like  the  present  there  is  no  con- 
duct on  the  part  oi  the  dormant  partner  which  makes  it  inequitable  on 
his  part  to  deny,  or  estops  him  from  denying,  his  liability  upon  a  con- 
tract to  wdiich  he  was  in  fact  no  party,  from  which  he  has  derived  no 
benefit,  and  in  respect  of  which  he  was  not  held  out  to  the  person  suing 
him  as  liable.  As  regards  this  point,  nothing  turns  on  the  subject 
matter  of  the  action  being  negotiable  instruments.  Beatson,  by  giving 
the  use  of  his  name  to  a  partnership  of  which  he  was  a  member,  and 
the  only  ostensible  member,  did  not  preclude  himself  from  making  con- 
tracts binding  himself  alone,  and  in  any  contracts  de  f<tct<>  made  by 
him,  whether  by  parol  or  in  writing,  the  question,  the  answer  to  which 
would  determine  Mycock's  liability  or  freedom  from  liability,  would  not 
be  whether  the  other  contracting  party  trusted  Beatson  because  he  sup- 
posed him  to  he  sole  owner  of  the  chemical  works,  butwhether  Beatson, 
whom  alone  he  knew  and  actually  trusted,  was  acting  as  agent  for  the 
partnership,  or  in  his  individual  capacity  for  himself.  This  kind  of 
question  was  raised  in  the  case  of  the  Bank  of  Scotland  v.  Watson.  I 
Dow.  40,  where  the  bank  and  its  agents  carried  on  separate  banking 
business  at  the  same  office,  and  the  bank  was  unsuccessfully  sued  by  a 
person  who  relied  in  support  of  his  claim  againsl  the  bank  upon  a 
receipt  which  bore  the  address  <>f  the  common  office.1  We  think  that 
the  judgment  of  the  court  below  should  stand,  and  that  this  appeal 
should  consequently  be  dismissed.  Judgment  affirmed. 

1  A  paragraph,  relating  to  a  question  "f  practice,  baa  been  omitted. 


154  THE   NATUKE    OF   A   PAKTNEKSHIP.  [CHAP.   IIL 

BUSH,    NEXT    FRIEND    of    Weir,    V.    LINTHICUM. 
59  Md.  344.    1882. 

Linthicum  filed  his  bill  for  a  dissolution  of  the  partnership  between 
himself  and  Weir,  and  for  other  relief.  Weir,  by  his  next  friend  Bush, 
interposed  the  defence  of  infancy.  The  decision  of  the  trial  court  was 
in  favor  of  the  complainant,  and  the  defendant  appealed.  The  opinion 
of  the  trial  court  was  approved  by  the  Court  of  Appeals,  and  its 
order  affirmed. 

F.  H.  StocJcett,  Jr.,  and  F.  H.  Stockett,  for  the  appellant. 

John  Ireland  and  James  Fevett,  for  the  appellee.1 

Miller,  J.  .  .  .  On  the  part  of  the  defendant,  it  is  strenuously  insisted 
that  this  plea  of  infancy  is  a  flat  and  absolute  bar  to  all  the  relief  asked 
by  the  complainant  in  his  bill,  and  that  the  same  must  be  dismissed 
with  costs,  and  the  proceedings  ended. 

To  this  proposition  thus  broadly  stated  and  insisted  upon,  I  cannot 
yield  assent.     I  concede  that  the  law  casts  its  protection  and  guardian- 
ship around  infants,  as  to  all  their  contracts  except  those    for  neces- 
saries, and  that  it  is  not  competent  for  the  court  in  this  case  to  pass 
any  decree  which  will  impose    any  personal  liability  upon  the  infant 
defendant  for  the  debts  of  this  firm,  or  enforce  upon  him  any  of  the 
terms  or  conditions  of  this  partnership  contract,  or  even  compel   him 
to  pay  any  of  the  costs  of  these  proceedings.     So  far  I  agree  that 
his  infancy  protects  him,  but  I  am  clearly  of  opinion  that  it  is  per- 
'  fectly   competent  for  the  court  to  decree  a  dissolution  of  the  partner- 
ship, and  to  wind  up  its  affairs  through  the  medium  of  a  receiver  — 
that  is,  to  collect  the  debts  due  the  firm,  sell  its  assets,  and  apply  the 
same  to  the  payment  of  its  debts.     In  doing  this  no  wrong  is  done  to 
the  infant,   no  executory  contract  is  enforced  against  him,  and  he  is 
thereby  merely  restrained  from  using  his  infancy  as  a  means  of  doing 
injustice  to,  or,  perhaps,  perpetrating  a  fraud  upon,  his  co-partner.     If 
the  court  has  not  the  power  to  grant  relief  to  this  extent,  then  the  adult 
will,  in  every  case,  be  placed  at  the  mercy  of  an  infant  partner*     All 
the  books  upon   partnership    lay  down  the  proposition  that  an  infant 
may  become  a  partner  with  an  adult.     It  is  a  contract  not  absolutely 
void,  but  one  which  the  infant  may  stand  to  or  repudiate,  at  his  elec- 
tion.    While  he  remains  a  partner  he  has  the  rights  and  powers  of  a 
partner.     He  has  equal  right  with  his  co-partner  to  the  possession  of 
the  assets  of  the  firm,  to  collect  the  debts  due  it,  and  he  has  also  the 
power  to  contract  debts  in  the  name  of  the  firm,  which,  though  he  may 
himself  subsequently  repudiate,  and  get  rid  of  personal  responsibility 
therefor,  are  still  binding  upon  his  co-partner.     Take  the  case  of  an 
adult  who  has  unfortunately  entered  into  a  partnership  with  an  infant, 
who  misrepresented  himself  at  the  time  to  be  of  full  age.     After  a  short 
time,  both  become  dissatisfied,   mutual  confidence  is  destroyed,    and 

1  The  statement  has  been  abridged. 


S  1.]  THE   FIRM:   ITS   MEMBERS:   ITS   NAME.  155 

each  becomes  odious  to  the  other.  The  infant  then  knowing  the 
security  from  responsibility  which  his  infancy  affords  him.  and 
at  the  same  time  availing  himself  of  his  powers  as  a  partner,  and  seek- 
ing to  defraud  and  injure  his  co-partner,  proceeds  to  gel  possession 
of  the  partnership  assets,  to  sell  them,  and  to  put  the  proceeds  in  his 
pocket,  and  goes  on  contracting  debts  which  he  knows  he  is  not 
responsible  for,  but  which  he  also  knows  will  work  the  absolute 
bankruptcy  of  his  co-partner.  Is  it  possible  that  a  court  of  equity 
has  no  power,  at  the  instance  of  the  adult  partner,  to  lay  its  hands 
upon  such  a  concern,  stay  the  consummation  of  his  ruin,  and  release 
the  tie  which  binds  him  to  the  body  of  such  a  death  ?  In  my 
opinion  there  is  no  such  lack  of  remedial  power  in  courts  of 
equity,  and  infancy  cannot  be  availed  of  as  a  bar  to  such  relief. 
If  authority  be  needed  in  support  of  this  position,  it  seems  to 
me  that  it  is  abundantly  sustained  by  the  decision  of  the  chancellor  in 
the  case  of  Kitchen  v.  Lee,  11  Paige,  107. 

It  is  thereupon  adjudged  and  ordered  that  the  plea  of  infancy  tiled 
in  this  case  by  the  defendant  be  and  the  same  is  hereby  overruled  and 
rejected  in  so  far  as  it  is  sought  to  be  used  as  a  bar  to  so  much  of  the 
relief  prayed  by  the  bill  as  asks  for  a  dissolution  of  the  partnership, 
the  granting  of  the  injunction  prayed  for,  and  the  appointment  of  a 
receiver  to  take  charge  of  and  wind  up  the  alfairs  of  the  firm  by  collect- 
ing the  debts  due  to  it,  by  taking  possession  of  and  selling  its  assets, 
and  by  applying  the  same  to  the  payment  of  its  debts.1 


LOVELL   &  CHRISTMAS  v.   BEAUCIIAMP. 

[1894]     Appeal  Cases,  607. 

The  respondent  was  a  partner  in  the  firm  of  Beauchamp  Brothers. 
Appellants  brought  an  action  against  the  firm  for  goods  sold.  Re- 
spondent, an  infant,  appeared  by  his  guardian  <></  lih  m  and  objected 
that  he  was  not  liable.  Judgment  was  ordered  against  the  defendants, 
but  execution  was  not  to  issue  against  the  respondent's  separate  prop- 
erty or  against  his  share  in  the  partnership  profits.  Appellants,  as 
judgment  creditors,  presented  a  petition  in  bankruptcy,  and  obtained  a 
receiving  order  against  the  estate  of  Beauchamp  Brothers.  This  order 
was  rescinded  by  the  Court  of  Appeal,  upon  the  ground  that,  one  of  the 

1  In  affirming  the  foregoing  opinion,  the  Court  of  Appeals  declared  "Having 
formed  this  partnership,  he  cannot  bo  far  repudiated  during  minority  as  to  escape 
Huch  consequences  of  partnership  a- 'I"  nol  involve  personal  liability  for  claims  against 
the  firm,  or  costs  incident  to  the  legal  settlemenl  of  its  affairs.  Such  partnership 
must  be  dissolvable  as  any  other:  and  the  partnership  wets  must  be  assignable  to 
partnership  creditors.  What,  his  rights  may  he,  as  against  his  adult  co  partner,  when 
lie  readies  his  majority,  we  do  not  decide." 


156  THE    NATURE    OF   A   PARTNERSHIP.  [CHAP.  IIL 

partners  of  Beaucbamp  Brothers  being  an  infant,  it  could  not  properly 
be  made  against  the  firm.  In  re  Beauchamp  Brothers,  [1894]  1 
Q.  B.  I.1 

Cooper  Willis,  Q.   (7.,  and  Finlay,  Q.  C,  for  the  appellants. 

Sir  Henry  James,  Q.  C,  and  Arthur  Powell,  for  the  respondent. 

Lord  Herschell,  L.  C.  My  Lords,  I  do  not  think  there  can  be  any 
doubt  as  to  the  substantial  rights  of  the  parties  in  this  case.  The 
form  which  the  proceedings  have  taken  gives  rise  to  greater  difficult}'. 

My  Lords,  I  proceed  now  to  state  what  I  conceive  to  be  the  true 
position  of  the  parties.  I  think  it  is  clear  that  there  is  nothing  to  pre- 
vent an  infant  trading,  or  becoming  partner  with  a  trader,  and  that  until 
this  contract  of  partnership  be  disaffirmed,  he  is  a  member  of  the  trad- 
ing firm.  But  it  is  equally  clear  that  he  cannot  contract  debts  by 
such  trading  ;  although  goods  may  be  ordered  for  the  firm,  he  does  not 
become  a  debtor  in  respect  of  them.  The  adult  partner  is,  however, 
entitled  to  insist  that  the  partnership  assets  shall  be  applied  in  payment 
of  the  liabilities  of  the  partnership,  and  that  until  these  are  provided 
for  no  part  of  them  shall  be  received  by  the  infant  partner,  and  if  the 
proper  steps  are  taken  this  right  of  the  adult  partner  can  be  made 
available  for  the  benefit  of  the  creditors. 

It  is  also  clear  that  even  if  there  are  circumstances  under  which  an 
infant  may  be  adjudicated  bankrupt,  or  a  receiving  order  may  lawfully 
be  obtained  as  a  step  towards  such  adjudication,  he  cannot  be  made 
subject  to  the  bankrupt  laws  in  respect  of  any  debt  contracted  by  the 
tirm  of  which  he  is  a  partner. 

The  plaintiffs  were,  no  doubt,  entitled  to  issue  a  writ  against  the 
firm  in  the  firm's  name.  But  it  is  to  be  observed  that  the  order 
(XLVIII.  A),  which  sanctions  such  a  proceeding,  provides  (rule  5) 
"  that  persons  sued  as  partners  in  the  name  of  their  firm  shall  appear, 
individually,  in  their  own  names."  As  soon  as  it  appeared  that  a 
member  of  the  firm  was  an  infant,  I  do  not  think  that  it  was  proper 
to  sign  judgment  against  the  firm. 

The  Divisional  Court  appear  to  have  taken  the  view  that,  inasmuch 
as  one  of  the  partners  was  an  infant,  the  firm  might  be  treated  for  the 
purposes  of  the  action  as  consisting  only  of  the  other  partner,  but  I  do 
not  think  this  is  so.  Although  an  infant,  he  was  a  partner,  and  the 
firm  name,  Beauchamp  Brothers,  applied  as  much  to  him  as  to  an  adult 
partner.  The  Court  of  Appeal  took  the  view  that  the  judgment  against 
the  firm  was  good  and  might  be  made  available  against  the  partnership 
property,  though  it  would  be  ineffectual  as  against  the  infant  partner. 
I  have  a  difficulty  in  seeing  how  it  can  be  supported.  Although  the 
judgment  may  be  pronounced  against  the  firm  in  the  firm's  name,  it  is 
in  reality  a  judgment  against  all  the  persons  who  are  in  fact  members 
of  the  firm  ;  and  it  is  because  such  a  judgment  exists  that  the  right  of 

1  "  The  case  has  been  argued  as  though  a  firm  had  a  separate  existence  as  distin- 
guished from  the  individual  members ;  as  if  it  were  a  corporation.  ...  It  is  no  such 
thing,  and  the  rules  do  not  mean  anything  of  the  kind."     Kay,  L.  J.,  at  p.  7. 


§  I-]  THE    FIRM:    ITS    MEMBERS:    ITS   NAME.  157 

execution  follows.  It  cannot  be  regarded  as  a  judgment  merely  against 
the  assets  of  the  firm.  The  right  of  execution,  whatever  it  may  be, 
arises  from  the  fact  that  certain  persons  have  been  adjudged  debtors. 

I  have  already  said  that  in  my  opinion  the  infant  could  not  be  so  ad- 
judged. 

It  is  true  that  rule  S  of  Order  XLVIII.  A,  which  sanctions,  in  the 
case  of  a  judgment  against  a  firm,  execution  against  the  property  of 
the  partnership,  restricts  any  further  execution  except  in  specified  cases 
without  leave  of  the  court  or  a  judge.  But  I  do  not  think  this  affords 
warrant  for  a  judgment  against  a  firm  including  a  person  who,  though 
a  member  of  the  firm,  was  not  a  debtor.  It  appears  to  me,  therefore, 
that  the  judgment  should  either  have  been  against  Ralph  Beauchamp 
alone  or  against  the  firm,  excepting  Gilbert  Walter  Beauchamp.  I 
shall  have  to  say  something  further  on  this  point  presently. 

If  the  judgment  had  been  in  either  one  or  the  other  of  these  fonns.  a 
receiving  order  might  no  doubt  have  been  obtained  upon  the  petition 
of  Lovell  &  Christmas  against  Ralph  Beauchamp,  and  in  the  proceed- 
ings in  bankruptcy  the  partnership  assets  might  have  been  made  avail- 
able for  those  who  had  given  credit  to  the  firm.  The  respondent  insists 
that  the  bankruptcy  proceedings  were  properly  set  aside,  inasmuch  as 
the  receiving  order  against  the  firm  would  operate  under  rule  202,  as 
if  it  were  a  receiving  order  made  against  each  of  the  persons  who,  at 
the  date  of  the  order,  was  a  partner  in  the  firm,  and  therefore  as  a 
receiving  order  against  him. 

I  agree  with  the  courts  below  in  thinking  that  the  receiving  order  in 
the  form  in  which  it  was  made  by  the  registrar  cannot  stand.  The 
question  is,  under  those  circumstances,  what  ought  to  be  done  ?  I  am 
most  unwilling,  if  it  can  be  avoided,  to  deal  witli  the  receiving  order  in 
a  manner  which  would  liberate  Ralph  Beauchamp  from  its  operation, 
and  render  fresh  bankruptcy  proceedings  necessary.  If  the  judgment 
and  receiving  order  stand  as  against  him,  he  will  certainly  sutler  no 
injustice  ;  whilst  if  the  receiving  order  be  set  aside  absolutely,  and  a 
fresh  petition  is  thus  rendered  necessary,  transactions,  which  might  lie 
avoided  under  the  present  receiving  order  in  the  interests  of  creditors, 
might  become  incapable  of  avoidance  under  a  receiving  order  of  a  later 
date. 

I  see  no  difficulty  in  amending  the  judgment  by  adding  after  the 
word  "defendants"  the  words  "other  than  Gilbert  Walter  Beau- 
champ." There  is,  I  think,  nothing  irregular  in  a  judgment  against  a 
firm  in  the  firm's  name  excluding  one  of  the  partners.  It  may  lie.  in 
many  cases,  of  advantage  to  the  plaintiff  to  obtain  such  a  judgment 
where  he  fails  to  establish  the  liability  of  a  member  of  the  (inn,  inas- 
much as  the  judgment  would  bind  not  only  the  partners  who  have 
appeared,  but  also  an}*  dormant  partners  who  have  not  appeared.  This 
might  be  a  reason  for  taking  the  judgment  in  that  form  rather  than  as 
a  judgment  against  the  known  members  of  the  firm  who  were  liable  for 
the  debt. 


158  THE   NATURE   OF   A   PARTNERSHIP.  [CHAP.  IIL 

Supposing  the  judgment  thus  amended,  I  think  the  bankruptcy  pro- 
ceeding rnay  be  amended  in  conformity  therewith  by  adding  throughout, 
after  the  words  "  Beauchamp  Brothers,"  the  words  "  other  than  Gilbert 
Walter  Beauchamp." 

The  Bankruptc}-  Act  gives  ample  powers  of  amendment.  By  sect. 
105,  the  court  may,  at  any  time,  "  amend  any  written  process  or 
proceeding  under  this  act  on  such  terms,  if  an}',  as  it  ma}'  think  fit  to 
impose."  Instead,  therefore,  of  setting  aside  the  receiving  order,  I 
think  the  proper  course  will  be  to  amend  it  in  the  manner  which  I  have 
suggested.  It  will  thus  constitute,  as  from  its  date,  a  valid  receiving 
order  against  Ralph  Beauchamp,  and  I  think  the  receiver  appointed 
under  that  order  should  also  be  appointed  receiver  of  the  partnership 
assets  for  the  purpose  of  protecting  them  for  the  benefit  of  the 
creditors. 

I  think  there  should  be  no  costs  on  either  side  of  these  proceedings. 
If  any  have  been  paid,  they  should  be  repaid,  or  allowed  in  account  as 
against  costs  clue  from  the  other  part}'. 

Lords  Ashbourne,  McNaghten,  and  Watson  concurred. 


FOLK  v.   SCHAEFFER  et  al. 

180  Pa.  St.  613:  37  At.  104.     1897. 

Fell,  J.  The  plaintiff  was  injured  while  assisting  his  fellow  work- 
men in  placing  a  hood  on  the  top  of  an  iron  smokestack.  The  direct 
cause  of  the  accident  was  the  slipping  of  a  knot  in  one  of  the  guy  ropes 
which  held  a  derrick  in  place.  The  knot  had  been  tied  by  one  of  the 
defendants,  —  Merkel.  The  action  was  against  Schaeffer,  Merkel,  and 
Betolette,  co-partners  trading  as  Schaeffer,  Merkel,  &  Co.  At  the  time 
of  the  accident  the  work  was  in  charge  of  the  plaintiff.  None  of  the  de- 
fendants were  present,  and  none  of  them  except  Merkel  had  seen  the 
appliances  used,  or  had  any  connection  with  the  work.  At  the  trial  an 
offer  was  made  to  prove  by  a  witness  that  after  the  accident  Schaeffer 
had  said  that  the  plaintiff  ought  to  be  paid  ;  that  he  had  always  been 
willing  to  pay  him  ;  that  the  other  members  of  the  firm  did  not  agree 
with  him  ;  and  that  he  preferred  to  pay  the  plaintiff,  rather  than  that  the 
money  should  go  to  the  lawyers  who  had  brought  the  action.  Under 
objection,  this  witness  testified  that  two  years  after  the  accident  Schaeffer 
had  made  to  him  a  statement  substantially  the  same  as  that  set  out  in 
the  offer.  It  does  not  appear  that  Schaeffer  had  any  personal  knowl- 
edge of  the  accident,  or  of  the  circumstances  under  which  it  happened. 
He  made  no  admission  of  a  fact  from  which  negligence  could  be  in- 
ferred, and  no  acknowledgment  of  a  liability  recognized  by  the  firm. 
At  the  most,  he  but  expressed  his  individual  opinion  that  the  plaintiff 
should  be  paid,  and  a  willingness,  on  his  part,  not  acquiesced  in  by  his 


§  1.]  THE   FIRM  :   ITS   MEMBERS:   ITS    NAME.  159 

partners,  that  the  firm  should  pay  something  to  avoid  litigation.  His 
opinion  as  to  the  legal  liability  of  his  firm,  and  his  expression  of  a 
-willingness  to  pay  something  in  compromise  of  pending  litigation, 
neither  imposed  a  liability  nor  tended  to  establish  facts  from  which  it 
would  arise.  This  testimony  was  doubtless  prejudicial  to  the  defend- 
ants, and  the  error  in  admitting  it  was  not  cured  by  limiting  its  effect 
to  the  party  who  made  the  statement.  As  the  action  was  against  the 
firm,  there  could  practically  be  no  such  limitation.  .  .  • 

The  judgment  is  reverted,  %cit?i  a  centre  facias  de  novo. 


HYDE  et  al.   v.  MOXIE  NERVE   FOOD   CO. 

160  Mass.  559:  3G  N.  E.  585.     1894. 

Holmes,  J.  This  is  an  action  to  recover  for  services  rendered  and 
expenses  incurred  b}r  the  plaintiffs  as  attorneys  for  the  defendant. 
The  case  is  here  on  the  defendant's  exceptions  to  the  refusal  of  the 
judge  below  to  make  certain  rulings  requested  by  it.  The  defendant 
was  not  represented  before  us  by  professional  counsel,  and  the  argu- 
ment on  its  behalf  took  a  wide  scope.  But  much  as,  under  some  cir- 
cumstances, we  might  feel  the  force  of  the  general  considerations 
addressed  to  us,  we  are  not  at  liberty  to  go  beyond  the  questions  of 
law  raised  by  the  requests,  and  we  necessarily  confine  ourselves  strictly 
to  them. 

The  first  ruling  requested  was  as  follows :  "  That  if  the  evidence 
should  prove  that  Henry  D.  Hyde,  Marquis  F.  Dickinson,  Jr.,  and 
Elmer  P.  Howe  were  not  co-partners  at  the  time  the  present  action  was 
brought,  the  plaintiffs  cannot  recover."  This  seems  to  be  founded 
upon  an  imperfect  analogy.  It  is  said  that  a  firm  is  a  legal  person,  and 
that  a  dead  person  cannot  sue.  But  a  firm  is  not  a  person  in  the  sense 
supposed.  For  technical  purposes  of  suing,  or  being  sued,  the  law- 
does  not  know  the  firm,  but  only  the  men  composing  it.  If  we  leave 
technicalities  on  one  side,  and  consider  practical  convenience,  it  would 
not  do  at  all  to  let  dissolution  —  for  instance,  by  the  death  of  a  mem- 
ber—  prevent  the  collection  of  debts  due  to  the  firm.  If  authority  is 
needed,  the  point  is  settled  by  decisions.     Fish  v.  Gates,  133   Mass. 

441  ;  Page  v.  Wolcott,  15  Gray,  530.  .  .  . 

Exceptions  overruh  <I.X 

1  A  part  of  the  opinion,  not  beariug  on  partnership  law,  is  omitted. 


160  THE   NATURE   OF   A   PARTNERSHIP.  [CHAP.  III. 

§  2.    Firm  Title  :  How  Taken  and  Held. 

MAUGHAM  v.  SHARPE  et  al. 

17  C.  B.  n.  s.  443.     1864. 

"W.  Dolby,  in  consideration  of  an  advance  of  £650  to  him  by  the 
defendants,  doing  business  in  the  firm  name  of  "  The  Cit}r  Investment 
and  Advance  Co.,"  assigned  to  them  in  such  firm  name  by  deed  all  the 
goods,  chattels,  and  effects  upon  his  farm.  Later,  he  gave  a  bill  of  sale 
of  the  same  goods  to  plaintiff.  Defendants  took  possession  of  the  goods 
and  sold  them.  Plaintiff  brought  this  action  against  them.  The  first 
count  was  for  conversion  of  the  goods  ;  the  second,  for  money  received 
by  the  defendants  to  plaintiffs  use. 

Plaintiff  contended  that  as  the  deed  under  which  defendants  claimed 
purported  to  convey  the  property  to  "The  City  Investment  and  Ad- 
vance Co.,"  and  not  to  the  defendants  by  name,  the  goods  could  not 
pass  by  such  deed  to  the  defendants. 

Williams,  J.  .  .  .  The  first  question  is 'as  to  the  validity  of  the  deed 
whereby  Dolby  assigned  the  goods  in  question  to  "The  City  Invest- 
ment and  Advance  Company."  It  has  been  objected  on  the  part  of  the 
plaintiff  that  that  conveyance  is  inoperative,  because  it  is  necessary  in 
a  grant  that  the  grantees  should  be  named,  otherwise  the  grant  can  in 
law  have  no  operation.  I  apprehend,  however,  it  is  fully  settled  that 
a  grant  may  be  good,  though  the  grantee  be  not  named  by  his  Christian 
or  surname.  In  Sheppard's  Touch  Stone,  p.  236,  the  learned  author, 
after  discussing  the  consequences  of  a  mistake  in  the  Christian  name, 
or  surname,  of  the  grantee,  goes  on  to  say  :  "  And  yet,  if  the  grant 
do  not  intend  to  describe  the  grantee  by  his  own  name,  but  by  some 
other  matter,  then  it  may  be  good  by  a  certain  description  of  the 
person,  without  either  surname  or  name  of  baptism  ;  "  for  he  adds  :  "  Id 
certum  est  quod  certum  reddi  potest."  In  this  case,  I  apprehend,  the 
meaning  of  the  grant  is  plain  ;  the  deed  purports  and  intends  to  convey 
the  goods  to  those  persons  who  use  the  style  and  firm  of  "The  City 
Investment  and  Advance  Company."  They  may  or  may  not  be  a  cor- 
poration ;  but  when  it  is  ascertained  that  those  who  carry  on  business 
under  that  name  are  the  defendants,  the  deed  operates  to  convey  the 
property  to  them.  .  .  . 

Willes,  J.,  concurred.1 

1  The  statement  of  facts  has  been  condensed,  and  the  opinion  of  Erle,  C.  J.,  as  well 
as  a  part  of  Mr.  Justice  Williams'  opinion  dealing  with  another  subject,  has  been 
omitted. 


§  2.]  FIRM   TITLE  :   HOW    TAKEN    AND    HELD.  161 

HENDREN  et  al.   v.  WING  et  al. 
60  Ark.  561 :  31  S.  W.  149.     1S95. 

Riddick,  J.  The  Arkansas  Machinery  &  Supply  Company  is  not 
a  corporation,  but  it  is  a  business  name  of  a  .linn  of  partners.  The 
question  for  us  to  determine  is  whether  a  chattel  mortgage  executed 
to  it  as  such  partnership  is  valid  at  law.  .  .  .  The  decisions  in  regard 
to  transfers  of  real  estate  to  partnerships  are  based  on  the  old  rule,  that 
14  a  partnership,  as  such,  cannot  at  law  be  the  grantee  in  a  deed  or  hold 
real  estate."'  Percifull  v.  Piatt,  36  Ark.  464.  This  rule  does  not  apply 
to  personal  property.  On  the  contrary,  a  partnership,  as  such,  can  at 
law  be  the  vendee  in  a  bill  of  sale  or  other  conveyance  of  personal 
property.  The  custom  of  the  country  teaches  us  that  this  is  so.  The 
business  of  the  country  is  largely  carried  on  by  partners  under  partner- 
ship names  which  frequently  do  not  contain  the  name  of  any  person. 
Vast  quantities  of  personal  property  of  all  kinds  are  contracted  for, 
bought,  and  sold  by  such  firms  under  their  firm  names  each  year,  and 
their  right  to  thus  buy  and  sell  goes  unchallenged.  A  consideration  of 
this  fact  shows  that  there  is  a  wide  distinction  between  the  rights  of 
partnerships  at  law  in  regard  to  the  buying  and  selling  of  personal 
property  and  the  restrictions  which  prevail  therein  in  regard  to  transfers 
of  real  estate. 

A  mortgage  is  onty  a  conveyance  for  the  purpose  of  securing  a  debt. 
If  a  bill  of  sale  conveying  personal  property  to  a  partnership  by  its 
firm  name  is  valid,  we  see  no  reason  why  a  mortgage  of  personal 
property  to  a  partnership  should  not  be  upheld  under  like  circum- 
stances. It  is  true  that  the  statute  requires  certain  formalities  in 
regard  to  acknowledging  and  recording  mortgages  in  order  to  give 
notice  to  third  parties.  But  there  is  nothing  in  the  statute  which 
renders  invalid  mortgages  of  personal  property  executed  to  a  partner- 
ship by  its  firm  name.  Such  a  conveyance  to  a  firm  is  just  as  effectual 
as  if  the  name  of  each  partner  had  been  set  out  in  the  mortgage.  Hen- 
derson v.  Gates,  52  Ark.  373  ;  Kellogg  v.  Olsen,  34  Minn.  103  ;  By  am  v. 
Bickford,  140  Mass.  32  ;  Brunson  v.  Morgan,  76  Ala.  593  ;  Lumber  Co. 
v.  Ashworth,  26  Kan.  212. 

We  therefore  conclude  that  the  judgment  of  the  Circuit  Court  in 
regard  to  the  validity  of  the  mortgage   /as  correct,  and  it  is  affirmed. 


DELMONICO  v.   GUILLAUME  et  al. 

2  Sand.  Ch.  306.     1845. 

Peter  and  John  Delmonico  became  partners  as  restaurateurs  in  the 
city  of  New  York,  in  October,  1827.  In  1885,  they  purchased  a  farm 
in  the  eastern  part  of  the  city  of  Brooklyn,  for  the  purpose  of  supply 

11 


162  THE   NATUKE   OF    A   PARTNERSHIP.  [CHAP.  III. 

ing  their  establishment  with  vegetables  and  provisions  ;  and  it  was  used 
for  that  purpose  for  several  years.  It  was  paid  for  out  of  partnership 
funds,  and  was  conveyed  originally  to  John,  who  executed  to  Peter 
a  deed  of  an  undivided  half. 

John  died  March  10,  1842,  leaving  a  widow  and  his  only  child 
Josephine,  surviving.  He  had  no  property  other  than  that  in  the  co- 
partnership. At  his  death,  the  firm  was  largeby  indebted,  and  to  an 
amount  exceeding  their  personal  property.  In  order  to  aid  in  paying 
off  the  debts,  the  complainant,  Peter  Delmonico,  entered  into  a  written 
contract  with  the  defendant,  by  which  he  agreed  to  sell  and  convey  to 
him  a  part  of  the  farm  equal  to  three  city  lots. 

At  the  time  appointed  for  the  payment  of  the  contract  price,  the 
complainant  tendered  a  deed  of  the  three  lots  to  the  defendant,  which 
he  refused  to  receive  because  the  former  had  no  title  to  one  undivided 
half  of  the  farm,  the  same  being  vested  in  the  infant  Josephine.  This 
bill  was  thereupon  filed  against  Guillaume  and  Josephine,  to  compel  the 
former  to  perform  his  contract. 

A.  HajKillo,  for  the  complainant. 

J.  Anthon,  for  Guillaume. 

G.  Gifford,  for  J.  Delmonico. 

Assistant  Vice  Chancellor  Sanford.  The  proof  is  full  and  con- 
clusive that  the  farm  in  Brooklyn  was  purchased  by  Peter  and  John 
Delmonico,  while  they  were  partners,  for  the  partnership  business, 
was  used  for  that  business,  and  was  paid  for  out  of  the  funds  of  the 
co-partnership. 

It  also  appears  that  the  debts  of  the  firm,  upon  its  dissolution  b\-  the 
death  of  John  Delmonico,  greatly  exceeded  the  value  of  the  personal 
property  owned  by  the  firm.  So  far  as  the  partners  and  their  creditors 
are  concerned,  real  estate  belonging  to  the  partnership  is  treated  in 
equity  as  personal  property,  and  subjected  to  the  same  general  rules. 

In  this  case,  therefore,  Peter  A.  Delmonico,  as  the  surviving  partner, 
became  entitled  to  the  Brooklyn  farm,  and  as  between  himself  and  the 
heir  of  John,  he  had  an  absolute  right  to  dispose  of  it  for  the  payment' 
of  the  debts  of  the  firm,  in  the  same  manner  as  if  it  had  been  personal 
estate.  The  authorities  to  this  effect  are  numerous.  Fereday  v. 
Wightwick,  1  R.  &  M.  45  ;  Phillips  v.  Phillips,  1  M.  &  K.  649  ;  Broom 
v.  Broom,  3  Id.  443  ;  Cookson  v.  Cookson,  8  Sim.,  429  ;  Townsend  v. 
Devaynes,  11  Sim.  498,  n.;  Dyer  v.  Clark,  5  Met.  562;  Howard  v. 
Priest,  5  Id.  582  ;  Story  on  Partnership,  §§92,  93  ;  3  Kent's  Comm. 
64,5th  ed.  The  case  of  Coles  v.  Coles,  15  Johns.  159,  was  at  law.  In 
Smith  v.  Jackson,  2  Ed.  Ch.  28,  the  Vice  Chancellor  concurred  in  the 
doctrine  of  the  cases  before  cited,  to  its  extent  as  applicable  to 
creditors. 

Indeed,  the  cases  of  Phillips  v.  Phillips  and  Broom  v.  Broom  go  so 
far  as  to  hold  that  this  farm  would  be  deemed  personalty  as  between 
the  real  and  personal  representatives  of  the  deceased  partner.  If 
that  doctrine  were  applied  here,  the  personal  representative  would  be 


§  2.]  FIEM    TITLE  :    HOW    TAKEN    AND    HELD.  103 

a  necessary  party  to  the  suit.     I  will  not  express  an  opinion  upon  the 
point  adjudged  in  those  cases. 

There  is  no  doubt  that  the  legal  title  is  vested  in  the  infant  de- 
fendant to  the  extent  of  one  undivided  half  of  the  lots  contracted 
to  Guillaume.  But  the  equitable  right  and  interest  being  vested  in 
the  surviving  partner,  the  infant  is  a  mere  trustee  of  the  legal  estate, 
and  the  Court  of  Chancery  must  compel  a  conveyance  of  the  estate 
upon  the  application  of  such  surviving  partner.  2  R.  S.  L94,  §  167  ; 
Broom  v.  Broom,  supra. 

The  latter  will  be  required  to  account  for  this  property  as  a  part 
of  the  assets  of  the  co-partnership.  If  the  complainaut  can  make 
a  good  title  in  other  respects,  he  may  have  a  decree  for  specific  per- 
formance. The  guardian  ad  litem  of  the  infant  will  join  in  the  con- 
veyance to  Guillaume,  executing  it  for  and  in  the  name  of  the 
infant.  And  the  complainant  must  pay  the  guardian  his  costs  of  the 
suit. 


WOODWARD  v.   McADAM  et  al. 

101  Cal.  438:  35  Pac.  1016.     1894. 

Paterson,  J.  This  is  an  action  on  a  negotiable  promissory  note 
secured  by  a  mortgage  given  by  the  defendant  McAdam  to  Shoobert, 
Beale,  &  Co.,  and  by  the  latter  assigned  to  this  plaintiff.  The  court 
below  granted  a  decree  of  foreclosure  as  prayed  for,  and  from  such 
decree  the  defendant  Jackson,  who  is  a  grantee  for  value  by  deed 
from  McAdam  given  subsequent  to  the  mortgage,  has  appealed. 

The  point  made  is  that  the  mortgagee  is  a  fictitious  person  —  that 
the  mortgage,  having  been  made  to  a  partnership  doing  business  under 
a  fictitious  name,  creates  at  most  only  an  equity,  and  as  against  a  sub- 
sequent grantee  for  value  of  the  mortgagor  establishes  no  lien. 

There  is  no  doubt  that  a  partnership  is  not  a  person,  either  natural 
or  artificial,  and  it  cannot  at  law  be  the  grantee  in  a  deed  or  hold  real 
estate.  Legal  title  must  rest  in  some  person,  but  if  the  title  be  made 
to  all  the  partners  by  name,  they  hold  the  legal  title  as  tenants  in  com- 
mon. In  equity,  however,  a  different  rule  prevails.  There  the  real 
purpose  for  which  the  property  was  acquired  is  considered,  and  under 
the  principles  of  trusts  the  court  will  regard  real  estate  held  for  partner- 
ship purposes  as  personal  property,  so  far  as  such  holding  may  be 
necessary  to  settle  the  equities  between  a  firm  ami  its  creditors,  or  be- 
tween partners  themselves.  None  of  the  latter  principles  are  involved 
in  this  action,  however. 

If  the  name  of  the  grantee  were  purely  fictitious,  that  is,  if  no  person 
were  named,  it  may  be  that  the  mortgage  would  be  void,  although 
there  is  respectable  authority  for  holding  that  a  mortgage  may  be 
enforced  in  the  firm  name.     Foster  v.  .Johnson.  '■'>'.>  .Minn.  880.      In  the 


164  THE    NATURE    OF   A   PARTNERSHIP.  [CHAP.  IIL 

case  at  bar  the  names  of  two  of  the  partners  appear  in  the  firm  name. 
There  is  an  important  distinction  to  be  drawn  between  a  description 
which  is  inherently  uncertain  and  indeterminate,  and  one  which  is 
merely  imperfect  and  capable  of  different  applications.  "  To  correct 
the  one  is,  in  effect,  to  add  new  terms  to  the  instrument ;  while  to  com- 
plete the  other  is  only  to  ascertain  and  fix  the  application  of  terms 
already  contained  in  it."  .  .  .  Morse  v.  Carpenter,  19  Vt.  616. 

In  Moreau  v.  Saffarans,  3  Sneed,  599,  67  Am.  Dec.  582,  it  was  held 
that  real  estate  purchased  b}T  partners  is  to  be  regarded  in  respect  to 
the  legal  title  as  an  estate  held  by  them  as  tenants  in  common,  but 
subject  to  a  trust  for  the  benefit  of  the  partnership  until  the  partner- 
ship accounts  are  settled,  and  that  a  conveyance  to  "J.  L.  Saffarans 
&  Co."  would  operate  to  invest  John  L.  Saffarans,  individually,  with 
the  entire  legal  title,  but  that  in  equity  he  would  be  treated  as  holding 
the  legal  title  in  trust  for  the  benefit  of  the  partnership.     In  Menage  v. 
Burke,  43  Minn.  212,  the  court  sustained  a  mortgage  of  real  estate  to 
"  Farnham  and  Lovejoy  "  as  legally  sufficient  as  a  mortgage  to  Sum- 
mer W.  Farnham  and  James  A.  Lovejoy,  it  appearing  that  said  persons 
constituted  the  firm  of  Farnham  and  Lovejoy.     In  Foster  v.  Johnson, 
39  Minn.  380,  the  court  explained  Ticld  v.  Rines,  26  Minn.  201,  cited 
by  appellant,  and  held  that  in  an  action  to  foreclose  a  mortgage  it  was 
no  objection  that  the  mortgage  ran  to  a  partnership  in  its  firm  name. 
In  Holmes  v.  Jarrett,  Moon,  &  Co.,  7  Heisk.  506,  the  court  held  that 
where  the  deed  was  made  to  Jarrett,  Moon,  &  Co.,  and  it  did  not  ap- 
pear whether  the  firm  was  composed  of  Jarrett,  Moon,  and  others,  or 
Jarrett  Moon  and  others,  the  title  would  vest  in  Jarrett  and  Moon,  or 
in  Jarrett  Moon,  in  trust  for  the  partnership,  and  that  the  uncertainty 
arising  from  the  omission  of  the  Christian  names  of  the  grantee  could 
be  removed  by  parol  proof.     See  also  Brunson  v.  Morgan,  76  Ala. 
594.     In  Winter  v.  Stock,  29  Cal.  407,  89  Am.  Dec.  57,  it  was  held 
that  a  conveyance  of  land  to  L.  B.  &  Co.  vests  the  legal  title  of  the 
same  in  L.  B.  alone,  and  that  his  deed  would  give  to  his  grantee  a  good 

and  valid  title. 

The  judgment  is  affirmed} 

i  In  Davis  v.  Davis,  60  Miss.  615  (1882),  the  plaintiff  brought  a  bill  in  equity  to 
compel  the  defendant,  among  other  things,  to  deed  to  the  plaintiff  "  a  one-half  interest 
in  land "  which  had  been  bought  with  firm  funds  by  the  partners,  but  which  was 
conveyed  to  the  defendant  individually  without  plaintiff's  knowledge.  Chalmers,  J., 
said  the  bill  may  be  sustained  "  so  far  as  it  seeks  a  proper  transfer  of  the  legal  title. 
That  title,  however,  should  be  made  to  the  firm  of  H.  L.  Davis  &  Co.,  since  the  alle- 
gations of  the  bill  show  not  a  purchase  by  co-tenants,  but  by  partners  for  firm  pur- 
poses. In  resistance  of  this  relief  it  will  be  admissible  for  defendant  to  show  that 
complainant  has  no  real  or  beneficial  interest  in  the  land,  and  for  this  purpose  he  can 
go  into  the  general  state  of  the  accounts  between  the  partners,  either  with  or  without 
a  prayer  for  dissolution." 


§  2.]  FIEM    TITLE  :   HOW   TAKEN    AND    HELD.  165 

MAGRUDEE,   J.,    in   ROBINSON  BANK    v.   MILLER  et   al. 
153  111.  244:   38  N.  E.  1078.     1894. 

In  the  case  at  bar  the  laud  was  not  purchased  with  partnership 
funds.  The  undivided  one-third  interest  bought  by  John  S.  Emmons, 
was  paid  for  b}'  him  with  his  own  individual  money.  Miller  also  paid 
for  the  one  undivided  one-third  interest,  purchased  by  him  with  his 
individual  funds.  None  of  the  money  of  the  firm  of  Newton,  Emmons, 
&  Miller  was  contributed  towards  the  purchase  of  the  one-third  inter- 
est held  by  Newton.  Indeed,  the  proof  shows  that  the  firm  of  Newton, 
Emmons,  &  Miller  was  formed  by  an  oral  agreement  after  Emmons  and 
Miller  had  bought  their  interests.  Each  partner  here  held  the  title  to 
an  undivided  one-third  part  of  the  property.  No  entries  were  made 
upon  the  books  of  the  firm  showing  that  the  real  estate  was  treated  as 
firm  assets.  The  evidence,  however,  does  show  that  the  property 
was  bought  for  the  purpose  of  being  used  in  the  milling  business,  and 
that  after  its  purchase  it  was  used  for  firm  purposes,  and  that  the  firm 
gave  its  notes  to  pa}'  for  repairs,  and  for  placing  new  machinery  in  the 
mill  upon  the  premises.  Under  these  circumstances,  was  the  land 
partnership  property,  or  the  individual  property  of  the  partners,  hold- 
ins;  as  tenants  in  common  ?  .   .  . 

The  general  doctrine  of  all  these  cases  is  that  a  purchase  of  the  land 
with  partnership  funds  is  necessaiy  to  make  it  firm  property.  T.  Par- 
sons, in  his  work  on  Partnership  (4th  ed.),  says:  "Although  it  [real 
estate]  be  held  in  the  joint  name  of  two  or  more  persons,  if  there  be 
no  proof  that  it  was  purchased  with  partnership  funds  for  partnership 
purposes,  it  will  be  considered  as  held  by  them  as  joint  tenants  or  ten- 
ants in  common.  .  .  .  So,  if  not  paid  for  by  partnership  funds,  then  it 
is  probably  his  property  who  does  pay  for  it,  whatever  use  he  permits 
to  be  made  of  it."  Sections  265,  266.  In  Hatchett  v.  Blanton,  72 
Ala.  423,  the  Supreme  Court  of  Alabama  say  :  "  Steering  clear  of  all 
cases  of  fraud,  or  of  the  use  by  one  partner,  without  the  approbation 
of  his  associates,  of  partnership  funds  in  the  acquisition  of  real  estate, 
the  two  facts  must  concur  to  constitute  real  estate  partnership  property, 
—  acquisition  with  partnership  funds,  or  on  partnership  credit,  and  for 
the  uses  of  the  partnership."  In  Thompson  y.  Bowman,  6  Wall.  816, 
the  Supreme  Court  of  the  United  States  say  :  "In  the  absence  of  proof 
of  its  purchase  with  partnership  funds  for  partnership  purposes,  real 
property  standing  in  the  names  of  several  persons  is  deemed  to  be 
held  by  them  as  joint  tenants  or  as  tenants  in  common."  Bachan  '■. 
Sumner,  2  Barb.  Ch.  165.  The  theory  of  some  of  the  cases  is  that 
real  estate  bought  with  separate,  and  not  partnership,  funds,  cannot  be 
converted  into  firm  property  by  a  verbal  agreement  between  the  part- 
ners, because  no  trust  can  be  created  in  lands,  unless  by  writing,  in 
view  of  the  statute  of  frauds,  except;  sticli  as  results  by  implication  of 
law.     Parker  v.  Bowles,  57  N.  II.  491.     There  are  cases  which   hold 


166  THE   NATURE    OF   A    PARTNERSHIP.  [CHAP.  IIL 

that,  even  though  the  land  was  originally  bought  by  the  several  part- 
ners with  their  individual  funds,  and  deeded  to  them  as  tenants  in 
common,  yet  it  will  be  regarded  in  equity  as  firm  property  where  it  is 
improved  out  of  partnership  funds  for  firm  purposes,  aud  actually  used 
for  such  purposes,  or  where  the  firm  puts  valuable  and  permanent  im- 
provements upon  it  for  firm  purposes,  and  which  are  essential  to  the 
firm.  In  some  instances  the  land  is  held  to  be  the  property  of  the 
partners,  and  the  improvements  to  be  the  property  of  the  firm.  1  Bates, 
Partn.  §§281,  282.   .   .    . 

The  weight  of  authority  seems  to  us  to  support  the  position  that 
where  persons  who  afterwards  become  partners  buy  land  in  their  indiv- 
idual names  and'  with  their  individual  funds,  before  the  making  of  a 
partnership  agreement,  the  land  will  be  regarded  as  the  individual  prop- 
erty of  the  partners,  in  the  absence  of  a  clear  and  explicit  agreement 
subsequently  entered  into  by  them  to  make  it  firm  property,  or  in  the 
absence  of  controlling  circumstances  which  indicate  an  intention  to 
convert  it  into  firm  assets.  We  do  not  think  that  an  application  of 
this  rule  to  the  facts  of  the  present  case  shows  the  real  estate  here  in 
controversy  to  be  firm  property.  .  .  . 

But  even  if  the  interest  held  by  John  S.  Emmons  was  firm  property, 
there  is  nothing  to  show  that  the  holders  of  the  mortgages  thereon  had 
notice,  or  reasonable  ground  for  believing,  that  it  was  firm  property. 
The  record  title  was  in  John  S.  Emmons,  and  all  the  circumstances 
coming  to  their  knowledge,  as  heretofore  stated,  were  calculated  to 
create  the  impression  that  his  real  interest  was  that  indicated  by  the 
record.  Facts  showing  a  partnership  in  the  milling  and  grain  business 
were  not  necessarily  notice  of  a  partnership  in  the  land.  Now,  it  is 
well  settled  that  a  bona  fide  purchaser  or  mortgagee  of  firm  property, 
from  one  of  the  partners  holding  the  legal  title,  without  notice  of  its 
partnership  character,  will  hold  it  free  from  partnership  claims.  T. 
Pars.  Partn.  (4th  ed.)  §§  277,  278  ;  1  Bates,  Partn.  §  291 ;  Dyer  v. 
Clark,  5  Mete.  (Mass.)  562 ;  Colly.  Partn.  (Perk,  ed.)  §  135. 


WILD   v.   MILNE   et  al. 
26  Beavan,  504.     1859. 

The  plaintiff  Wild,  the  defendant  Milne,  and  the  five  other  co-defend- 
ants were  engaged  in  working  a  colliery  called  the  Dean  Colliery. 
They  had  obtained  seven  leases  of  different  parts  of  the  property  for 
terms  ranging  between  twenty-one  and  forty  years.  There  were  no 
articles  of  partnership,  and  no  fixed  term  for  its  duration,  but  the  part- 
ners were  entitled  in  equal  shares  to  the  profits. 

In  consequence  of  some  disagreements,  the  plaintiff  gave  notice  to 
dissolve,  and  instituted  this  suit  against  his  co-partners  to  have  the 


§  2.]  FIRM   TITLE:    HOW   TAKEN    AND    HELD.  167 

partnership  wound  up.  It  did  not  allege  that  there  were  any  del  its, 
but  it  prayed  that  the  partnership  property  might  be  sold  and  applied 
in  payment  of  the  debts  and  liabilities,  and  that  the  surplus  might  be 
divided. 

This  was  resisted  by  the  defendant  Milne  alone,  and  the  case  was 
now  brought  on  for  hearing. 

Mr.  R.  Palmer  and  Mr.  Eddit,  for  the  plaintiff. 

Mr.  Lloyd  and  Mr.  Fowl&r,  for  Milne. 

Mr.  Bacon,  Jr.,  for  the  other  defendants,  concurred  with  the  plaintiff. 

Sir  Johx  Romiixy,  M.  R.  I  am  clearly  of  opinion  that  this  is  an 
ordinary  case  of  partnership,  and  that,  when  it  is  dissolved  or  termi- 
nated, any  one  of  the  partners  is  entitled  to  have  the  whole  assets 
disposed  of.  In  this  ease,  it  is  admitted  that  any  one  can  put  an  end 
to  the  partnership:  the  result  is,  that  that  which  forms  the  partnership 
assets  must  be  disposed  of  for  the  purpose  of  settling  the  rights 
between  the  partners.  I  consider  this  established  by  Crawshay  v. 
Maule,  1  Swanst.  518,  52G,  where  the  distinction  between  the  individ- 
ual interests  of  several  persons  in  land,  where  there  is  a  trading  part- 
nership, and  where  there  is  none,  is  adverted  to.  One  of  the  cases 
points  out  the  singular  inconvenience  which  would  follow,  if  I  were  to 
direct  a  sale  of  the  plant  and  a  partition  of  the  land  demised.  Would 
the  steam-engine  be  included  in  the  division,  and,  if  so,  how  could  it 
be  possible  to  make  a  partition  of  the  remainder?  Are  all  the  parties 
to  have  the  use  of  the  shaft,  or  a  right  of  descending  b}-  means  of  the 
machinery?  The  court  is  compelled,  by  the  exigency  and  circum- 
stances of  these  cases,  to  direct  a  sale.  I  shall,  therefore,  make  the 
usual  decree,  and,  according  to  the  prayer  of  the  bill,  direct  a  sale. 

The  parties  are  entitled  to  an  inquiry  to  ascertain  how  the  partner- 
ship propert}'  can  be  most  advantageously  sold,  and  whether  as  a  going 
concern  or  not. 

Liberty  to  bid  may  be  given  to  all  the  partners,  except  the  one 
having  the  conduct  of  sale.  Appoint  a  receiver  and  manager,  with 
liberty  to  any  party  to  propose  himself,  without  salary. 


KRUSCHKE  v.  STEFAN. 

83  Wis.  373  :  53  X   W.  679.     1892. 

PiNNET,  J.  ...  2.  The  evidence  shows,  we  think,  that  the  lots  in 
question  were  partnership  property,  used  and  treated  as  such  by  the 
parties,  and  improved  out  of  partnership  funds,  the  title  thereto,  by  agree- 
ment, having  been  taken  in  the  name  of  the  defendant,  realty  lor  the  uses 
and  purposes  of  the  co-partnership.  The  title  was  nested  jusl  as  the  par- 
ties intended  it  should  he,  and,  although  the  properly  was  realty,  in  the 
estimation  of  a  court  of  equity  it  had  been  thus  converted  into  personal 


168  THE   NATURE    OF    A   PARTNERSHIP.  [CHAP.  IIL 

estate  for  all  partnership  purposes,  and,  with  other  partnership  effects, 
was  held  subject  to  the  payment  of  firm  debts  and  losses,  and  the  return 
of  the  capital  originally  advanced  by  each  of  the  partners,  when  the 
residue,  if  any,  would  be  subject  to  division  between  the  partners,  as 
profits  ;  and  if  it  consisted  of  real  estate  they  would  be  entitled  to  hold 
the  legal  title  as  tenants  in  common.  1  Bates,  Partn.  §  282,  Bird  v.  Mor- 
rison, 12  Wis.  138 ;  Fowler  v.  Bailley,  14  Wis.  126  ;  Roberts  v.  McCarty, 
9  Ind.  16  ;  Godfrey  v.  White,  43  Mich.  171 ;  Bopp  v.  Fox,  63  111.  540  ; 
Martin  v.  Morris,  62  Wis.  418  ;  Foster's  Appeal,  74  Pa.  391 ;  Andrew's 
Heirs  v.  Brown,  21  Ala.  437  ;  Shanks  v.  Klein,  104  U.  S.  18  ;  Allen  v. 
Withrow,  110  U.  S.  119.  The  plaintiff,  therefore,  had  no  right  to  call 
for  a  conveyance  of  his  interest  as  a  tenant  in  common  of  the  lots  until 
the  trust  fastened  upon  them  for  partnership  purposes  had  been  full}* 
satisfied.  Until  then  the  legal  title  must  remain  where  the  parties,  by 
mutual  consent,  have  vested  it,  and  therefore  the  remedy  of  the  plain- 
tiff, if  any,  was  only  by  action  to  dissolve  the  co-partnership,  and  for  an 
accounting  and  proper  application  of  assets.  2  Bates,  Partn.  §  910.  The 
general  rule  is  that  an  action  cannot  be  maintained  b}'  one  partner 
against  his  co-partner  for  a  partial  division  of  the  assets  of  the  firm,  and 
this  case  does  not  fall  within  any  recognized  exception  to  the  rule. 

It  is  contended  in  support  of  the  judgment  that,  where  the  title  to 
partnership  property  has  been  wrongfully  or  improperly  vested  in  one 
co-partner,  the  other  may  maintain  an  action  to  have  the  legal  title 
vested  in  all  the  partners,  according  to  the  true  intent  of  the  parties,  and 
its  equitable  ownership,  without  bringing  an  action  for  dissolution  and 
winding  up  the  affairs  of  the  firm.  The  cases  of  Traphagen  v.  Burt, 
67  N.  Y.  30,  and  Davis  v.  Davis,  60  Miss.  615,  are  relied  on.  Both  of 
these  were  cases  where  real  property  had  been  acquired  with  partnership 
funds,  and  for  partnership  purposes,  but  the  co-partner  conducting  the 
transaction,  without  the  knowledge  or  consent  of  the  other  partner, 
had  procured  the  title  to  be  conveyed  to  him  which  should  have  been 
conveyed  to  both,  and  in  those  cases  it  was  held  that  the  implied  and 
resulting  trust  arising  out  of  such  breach  of  faith  might  be  enforced 
without  bringing  a  suit  for  dissolution  and  accounting.  But  these  cases 
are  clearly  distinguishable  from  the  present.  Here  there  has  been  no 
violation  of  confidence  or  breach  of  faith  by  the  defendant  in  taking  the 
deed  of  the  lots  in  question  in  his  own  name.  The  court  finds  that  it 
was  so  taken  in  good  faith,  and  was  so  taken  for  partnership  purposes  ; 
and  the  lots  became  a  part  of  the  property  and  assets  of  the  firm.  This 
objection  furnishes  an  additional  and,  as  it  seems  to  us,  an  incontest- 
able ground  for  holding  that  the  plaintiff's  complaint  should  be 
dismissed.  .  .  . 

The  judgment  of  the  Circuit  Court  is  reversed. 


§  2.]  FIRM    TITLE  :   HOW   TAKEN    AND    HELD.  169 

MOLINEAUX    v.   RAYNOLDS   et  al. 

54  N.  J.  Eq.  559 :  35  At.  536.     189(3. 

Reed,  V.  C.  This  bill  is  tiled  for  a  partition  of  a  tract  of  land,  upon 
which  is  a  factory,  at  Bergen  Point,  N.  J.  It  is  admitted  that  the 
present  owners  of  the  property  are  Charles  T.  Raynolds,  Thomas  B. 
Hidden,  the  two  defendants,  and  Gen.  Molineaux,  the  complainant. 
It  is  also  admitted  that  they  own  it  as  partners.  It  is  admitted  bv 
counsel  that,  if  the  property  is  subject  to  a  partition  suit,  it  should  lie 
sold,  and  not  divided.  Two  questions  are  presented  for  solution  :  The 
first  is  whether  the  suit  for  partition  is  well  brought.  If  it  is  properly 
brought,  then  the  second  question  is,  what  are  the  proportionate 
interests  of  the  owners  in  the  property? 

It  is  essential  to  a  clear  understanding  of  the  second  of  these  ques- 
tions—  and,  in  a  degree,  of  the  first  —  that  the  manner  in  which  the 
property  in  question  was  created,  and  how  it  is  now  owned,  should  he 
set  out  in  detail.     It  appears  that  previous  to  the  year  1867  there  ex- 
isted a  firm  under  the  name  of  Raynolds,  Pratt,  &  Co.,  of  which  firm 
the  parties  to  this  bill  were  members.     In  1867  a  new  partnership  was 
formed,  consisting  of  four  persons,  namely,  Raynolds,  Hidden,  Richard- 
son, and  Molineaux.     By  the  terms  of  the  partnership  agreement,  each 
was  to  put  into  the  new  firm,  as  capital,  the  amount  of  interest  which 
each  had  had  in  the  old  firm  of  Raynolds,  Pratt,  &  Co.,  and  Molineaux 
was  to  put  820,000  in  addition.     This  agreement  continued  until  1875. 
Between  1867  and  1870  one  Aquilla  Rich  became  a  member  of  the  (inn, 
and  in  1870  a  deed  for  the  property  now  in  question  was  made  to  the 
five  partners.     In   1875  a  new  agreement  was  made  between   these 
partners.     In  this  agreement  the  capital  stock  contributed  bv  each  was 
set  forth.     It  was  stated  that  Charles  T.  Raynolds'  share  of  contributed 
capital  was  $450,000;  Ilidden's  share,  $250,000  ;  Richardson's  share, 
8138,000;  Molineaux's  share,  $100,000;    Rich's  share,  $33,000.     By 
the  terms  of  the  agreement  the  net  profits  were  to  be  divided  as  fol- 
lows :  To  Raynolds,  33  per  cent ;  to  Hidden,  22h  per  cent ;  to  Richard- 
son, 15  per  cent;  to  Molineaux,   15  per  cent;  and  to  Rich,  1  2.1   per 
cent.     The  several  partners  were  to  receive  interest  on  their  capital  up 
to   certain  amounts,  and   were  to  share  net  profits   according   to   the 
agreement  above  stated.     This  agreement  continued  until  1882,  when 
another  agreement  was  entered   into.     In   this  agreement,   also,    the 
amount  of  capital  contributed  by  each  was  stated,  namely,  Raynolds, 
1450,000;    Hidden,   $250,000 ;    Richardson,   $188,000:     Molineaux, 
8138,000;  Rich,  $33,000.     The  net  profits  were  to  be  divided  as  i,,  the 
last-mentioned  agreement,   and  interest  was  to  be  paid  on  capital   in 
th'-  same  way.      In   1884    still   another  agreement  was  made.      In   this 
agreement  the  amount  of  capital  stock  contributed  by  each  was  stated 
as    follows:    Raynolds.    $500,000;    Hidden,    $850,000;    Richardson, 
827,000;  Molineaux,  $160,000 ;  Rich,  $27,000.     The  net  profits  were 


170  THE   NATUEE    OF   A    PARTNERSHIP.  [CHAP.  IIL 

to  be  divided  as  follows  :  To  Raynolds,  33  per  cent ;  to  Hidden,  24 
per  cent;  to  Richardson,  12^  per  cent;  to  Molineaux,  18  per  cent;  and 
to  Rich,  12i  per  cent.  Interest  on  capital  was  to  be  paid  as  before. 
This  agreement  was  to  last  for  five  years.  Shortly  before  the  termina- 
tion of  this  agreement  three  of  the  partners  (the  parties  to  this  suit) 
purchased  the  interest  of  two  of  the  parties,  namely,  Richardson 
and  Rich,  paying  therefor  the  sum  of  $40,000.  Each  of  the  three 
purchasing  partners  contributed,  to  pa}-  the  consideration,  the  same 
proportions  that  the}*  had  contributed  capital.  Shortly  after  the  pur- 
chase of  these  interests,  Charles  T.  Raynolds  having  become  insane,  a 
new  agreement  was  executed,  by  which  the  interest  of  Charles  T. 
Raynolds  in  the  personal  property,  machinery,  and  fixtures  of  the  firm 
was  purchased  by  the  other  two  partners,  together  with  one  Edward 
H.  Ra3'nolds.  By  this  arrangement  all  the  property  of  the  firm,  except 
the  real  estate,  was  transferred  to  a  new  firm,  consisting  of  Thomas  B. 
Hidden,  Edward  L.  Molineaux,  and  Edward  H.  Ra}-nolds.  By  this 
agreement  all  the  liabilities  of  the  old  firm  were  assumed  by  the  new 
firm,  with  the  exception  of  one  liability,  in  the  shape  of  a  suit  then 
pending  against  the  firm,  brought  by  one  De  Floras.  This  transaction 
wound  up  the  business  existence  of  the  old  firm,  leaving  as  undivided 
assets  the  property  in  question,  and  one  other  piece  of  real  estate, 
situate  in  Brooklyn,  N.  Y.  These  properties  therefore  belong  to  the 
members  of  the  old  firm,  the  three  parties  to  this  suit. 

The  first  question  mooted  springs  out  of  the  existence  of  the  De 
Floras  suit.  The  counsel  for  the  defendants  insist  that,  so  long  as  any 
claim  against  the  old  firm  remains  unsatisfied,  so  long  each  partner 
has  a  right  to  have  the  firm  assets  held  as  such  to  be  applied  in  liqui- 
dation of  the  claim  ;  that  until  all  such  claims  are  satisfied  no  partner 
has  a  right  to  demand  a  division  of  the  firm  property.  The  equitable 
rule  thus  invoked  is  entirely  settled.  The  property  of  a  firm,  whether 
personal  or  real,  is  a  fund  to  be  primarily  applied  to  the  payment  of  its 
debts  ;  and  each  partner  has  a  right  to  have  it  so  appropriated,  to  the 
end  that  he  himself  may  be  relieved  from  any  personal  liability  to 
answer  for  the  firm  debts.  In  England,  land  as  well  as  personalty  be- 
longing to  a  firm  is  regarded  as  personal  assets.  Lindl.  Partn.  §  343. 
In  this  country  the  land  is  held  to  be  personal  assets  so  far  onby  as  it 
may  be  needed  to  pay  firm  creditors.  Bank  v.  Sprague,  20  N.  J.  Eq. 
13;  Freem.  Partition,  §  118.  Out  of  this  equity  of  each  partner  to 
have  the  firm  property  applied  to  the  payment  of  firm  debts,  in  order 
that  he  may  be  discharged  from  personal  liability,  has  emerged  the  rule 
that  the  partition  of  the  real  propert}'  of  a  firm  will  not  be  decreed,  so 
long  as  debts  of  the  partnership  remain  unliquidated.  Pennybacker  v. 
Leary,  65  Iowa,  220  ;  Kruschke  v.  Stefan,  83  Wis.  373  ;  Mendenhall  v. 
Benbow,  84  N.  C.  646;  Freem.  Partition,  §  443.  By  the  rule  laid 
down  in  these  cases,  the  only  method  by  which  a  partner,  under  such 
conditions,  can  compel  a  division  of  the  firm  property,  is  by  a  bill  ta 
administer  and  settle  the  partnership  affairs. 


S  2.]  FIRM    TITLE  :    HOW    TAKEN    AND    HELD.  171 

It  is  apparent,  however,  that,  inasmuch  as  the  ground  for  refusing 
partition  is  that  partners  may  be  protected  from  future  calls  to  pay 
firm  debts,  therefore  if  it  should  be  made  to  appear  that  the  property 
involved  in  the  application  for  partition  will  not  be  needed  to  meet 
such  obligations,  the  objection  to  the  distribution  of  the  property  dis- 
appears. Now  it  appears  in  this  case  that  there  is  other  real  estate  in 
Brooklyn,  belonging  to  this  firm,  of  the  value  of  8150,000.  It  also 
appears  that  the  De  Floras  suit  is  pending  in  the  courts  of  New  York. 
The  property  and  the  pending  suit  are  therefore  both  in  the  State  of 
the  firm's  domicile.  It  is  beyond  the  realms  of  probability  that  the 
final  judgment  in  the  De  Floras  suit,  which  suit  has  been  dragging 
along  for  20  years,  can  reach  an  amount  which  will  begin  to  exhaust 
the  Brooklyn  property.  Although  it  appears  that  a  proceeding  for 
partition  of  that  property  also  had  been  commenced  in  the  courts  of 
Now  York,  that  proceeding  has  not  gone  to  a  decree,  and  it  is  in  that 
suit  that  the  defence  set  up  here  can  be  more  appropriately  interposed. 
Under  these  conditions,  I  do  not  see  any  substantial  ground  for  think- 
ing that  the  interest  of  any  member  of  the  firm  will  be  menaced  by 
the  severance  of- the  title  to  this  property  as  is  proposed  by  this  suit. 

The  second  question  is  therefore  presented,  what  are  the  proportion- 
ate interests  of  these  parties  in  this  real  estate?     The  contention  of  the 
complainants  is  that  this  real  estate  represents  accumulated  profits,  and 
therefore  should    be  divided  in  the    proportions  to  which  the  several 
partners  were  entitled  to  share  in  profits.     The  contention  of  the  de- 
fendants is  that  this  real  estate  represents  capital,  and  it  should  be 
divided  in  proportion  to  each  partner's  contribution  of  capital.     Inas- 
much as  the  partners  under  the  different  partnership  agreements  were 
entitled  to  share  in  profits  in  proportions  differing  from  their  propor- 
tionate contributions  of  capital,  it  follows  that  by  the  adoption  of  the 
one  or  the  other  of  these  theories  the  interest  of  the  complainant  in  the 
firm  property  is  differently  affected.     As  has  been  already  displayed, 
these  partners  had  transacted  partnership  business  under  successive 
agreements  from  1867.     Each  agreement  set  out  the  amount  of  capital 
which  each  partner  had  contributed,  and  prescribed  the  proportion  of 
profits  to  which  each  partner  was  to  be  entitled  during  the  term  of  the 
partnership.     He  was  also  to  have  the  right  to  draw  interest  upon  his 
capital.     Now,  some  partners  drew  out  all  of  their  interest  and  all  of 
their  profits.     Others  let  a  portion  of  their  profits  or  a  portion  of  their 
interest  remain  in  the  business.     By  the  apparent  acquiescence  of  all 
the  partners,  the  balance  of  those  profits  or  interest  remaining  at  the 
end  of  each  year  undrawn  were  added  to  the  amount  of  the  capital  of 
those  of  the  partners  who  saw  lit,  to  permit  them  to  remain  in  the  busi- 
ness.    By  reason  of  the  unequal  additions  t<>  the  capital  from  year  i<> 
year,  the   proportions   of  capital    respectively  contributed    constantly 
shifted,  and  the  total  amount  of  capital  contributed  by  all  increased. 
Now,  the  theory  of  the  complainant  is  that  the  original  amount  of  firm 
property  was  increased  by  the  employment  of  the  profits  which   were' 


172  THE   NATURE    OF    A   PARTNERSHIP.  [CHAP.  IIL 

permitted   to  remain   in  the   business  in   improving   and   purchasing 
property. 

It  is  insisted  that,  by  the  sale  of  the  personal  property  by  the  old 
firm  to  the  new  firm  in  1889,  the  members  of  the  old  firm  were  paid  for 
all  the  property  which  represented  the  product  of  the  original  capital, 
and  that  what  remained  is  to  be  regarded  as  the  product  of  the  profits, 
and  should  therefore  be  divided  as  such.     Now,  it  seems  to  be  entirely 
clear  that  at  the  end  of  each  year  the  net  profits  of  the  business  were 
divided  between  the  respective  partners  in  the   proportions  in  which 
profits  were  to  be  divided  by  the  terms  of  the  agreement.     It  is  clear 
that  when  these  profits  were  calculated  and  divided  according  to  the 
terms  of  the  agreement,  and  the  share  of  each  partner  was  put  to  his 
credit,  then,  as  between  the  partners,  these  profits  ceased  to  be  assets 
of  the  firm,  and  became  debts  due  from  the  firm  to  each  member  of  the 
firm.     The  sum  set  apart  to  each  partner  at  the  end  of  each  year  was 
at  the  disposal  of  the  partner  as  so  much  cash  put  to  his  credit.     He 
could  draw  it  out  and  use  it  as  he  chose.     If  he  chose  to  invest  it  in 
the  business,  it  was  to  be  regarded  as  any  other  money  which  he  saw 
fit  to  so  invest.     It  became  a  part  of  the  capital,  or  it  became  a  loan, 
just  as  he  and  the  partners  agreed.     That  they  agreed  to  regard  these 
sums  as  additions  to  the  capital  appears  beyond  all  question.     Up  to 
1884  there  was  not  merely  a  division  of  calculated  profits,  but  such 
calculation  included  all  profits,  so  that  apparently  nothing  existed  in 
the  shape  of  undivided  earnings.     This  appears  from  a  fact  I  think 
proven,  i.  e.,  that  in  the  calculation  of  profits  all  moneys  spent  in  better- 
ments were  eliminated  from  the  debit  side  of  the  account.     Mr.  Mather, 
the   book-keeper,  swears   positively  that   no   expense  for   permanent 
improvement,  but   only  expenses  for  repairs   to   the   real   estate  and 
machinery,  were  deducted  from  the   gross  earnings  of  the   business, 
in  arriving  at  the  net  profits. 

Each  partner  therefore  received  as  a  credit  for  his  share  of  the 
profits  the  same  amount  that  he  would  have  received  had  no  permanent 
improvements  upon  the  firm  property  been  made.  The  expense  of 
the  permanent  improvement  was  a  debt  against  the  firm  assets,  and, 
when  paid,  was  necessarily  paid  out  of  the  new  capital  which  the 
partners  contributed,  by  leaving  a  portion  of  their  credit  for  profits 
and  interest  in  the  business  of  the  firm.  This  portion,  as  already 
observed,  after  being  calculated  and  credited  was  equivalent  to  cash, 
and,  if  left  in  the  firm  business,  is  to  be  regarded  as  capital.  Again, 
each  of  the  parties  has  acquiesced  in  the  view  that  his  interest  in  the 
property  was  in  proportion  to  his  contributions  of  capital. 

In  March,  1889,  as  already  stated,  the  interest  of  two  of  the  partners, 
Richardson  and  Rich,  was  purchased  by  the  three  remaining  partners. 
The  interest  of  these  two  partners,  whether  something  or  nothing,  was 
paid  for  by  the  three  partners  in  proportion  to  their  capital.  The  pur- 
chase eliminated  any  claims  which  the  selling  partners  might  have  had 
to  share  in  the  assets  of  the  firm,  and  transferred  such  claim  to  the 


S  2.]  FIRM    TITLE:    HOW    TAKEN    AND    HELD.  173 

three  remaining  partners.     The  manner  by  which  this  purchase   was 
made  and  paid  for  indicates  that  the  view  of  the  parties  was  that  the 
right  of  each  in  all  the  assets  was  in  proportion  to  his  capital.     Again, 
in  Ma\-  a  new  firm  was  formed,  composed  of  the  two  old  members, 
Hidden  and  Molineaux,  and  a  new  member.     By  reason  of  Raynolds' 
insanity,  it  became  essential  to  ascertain  the  amount   of   Raynolds' 
interest  in  the  firm.     The  ascertainment  of  this  necessarily  involved 
the   ascertainment    of    the    proportionate    interests    of    Hidden    and 
Molineanx.     In  accordance  with  the  result  of  this  adjustment  of  values, 
the  personal  assets  of  the  old  firm  were  to  be  turned  over  to  the  new 
firm.     An   expert   was   put   upon   the   books   to   discover   any   error 
in  book-keeping  which  might  have  crept  in  during  the  number  of  years 
covered  by  the  partnership  transactions,  so  that  a  final  accurate  ac- 
count might  be  stated.     With  the  consent  of  all  the  parties  connected 
with  the  old  and  the  new  firms,  such  an  account  was  stated ;  and  upon 
the  basis   of   such  statement  the  personal  property  of  Raynolds  was 
purchased,   and  the  personal  property  of  Hidden  and  Molineanx  in 
the  old  firm  was  transferred  to  the  new  firm.     In  making  up  the  valu- 
ation of  the    property  of  the   old   firm,   the  real  estate   was  valued 
at  8289,200.     The  real  estate  did  not  pass  to  the  new  firm,  but  was 
retained  by  the  three  old  members.     In  fixing  the  value  of  all  the 
property,  the  value  of  the  real  estate  was  deducted.     In  fixing   the 
value  of  the  interest  of  each  partner  in  all  the  property,  his  propor- 
tionate interest  in  the  real  estate  was  deducted  from  his  proportionate 
interest  in  all  the  property.     Now,  the  deduction  on  account  of  Ray- 
nolds' interest  in  the  real  estate  was  calculated  in  accordance  with  the 
relative  amount  of  capital  which  he  had  contributed  to  the  firm.     In 
other  words,  his  share  in  the  personalty  was  sold  upon  the  theory  that 
his  proportionate  interest  in  the  real  estate,  as  well  as  in  the  personalty, 
was  yVt?  an(*  tne  real  estate  was  retained  upon  that  theory.     It  will  be 
perceived  that  the  adoption  of  this  theory  in  respect  to  Raynolds'  in- 
terest involved  as  a  sequence  the  adoption  of  the  same  theory  with 
respect  to  the  interest  of  Hidden  and  Molineaux.     It  is  also  perceived 
that  if  Molineaux's  proportionate  interest  in  the  real  estate,  as  is  now 
claimed,   is  not   in  proportion   to   his    capital   contributed,   which    is 
,',;,,  but  is  2  per  cent  more,  then  it  follows  that  the  deduction  from 
the  amount  received  by  Raynolds  on  account  of  his  interest  in   the 
real  estate  retained  was  excessive,  and  therefore  what  he  received  for 
the  personalty  was  inadequate.     This   follows  from  the  fact  that,   if 
Molineaux's  share  was   larger,   Raynolds'  must   be   smaller,   else    the 
proportions  could  not  be  preserved.     In  fact,  to  accord  to  Molineaux 
what  he  now  claims,  the  entire  settlement  must  be  overturned,   and 
a  new  one  adopted. 

In  view  of  these  facts,  namely,  that  from  1867  to  1880  the  profits 
have  been  divided  ;  that  they  have  been,  if  the  partners  pleased,  added 
to  the  capital;  that  the  purchase  of  the  two  partners'  shares  was  made 
upon  the  basis  of  the  proportion  of  capital  contributed  ;   that  the  calm- 


174      ,  THE    NATURE    OF    A    PARTNERSHIP.  [CHAP.  III. 

lation  and  settlement  of  the  Kaynolcls  interest  in  all  the  property  were 
made  upon  the  same  basis  ;  that  the  books  of  the  firm  were  open  to 
each  member  of  the  firm  ;  and  that  at  the  end  of  each  year,  as  Mr. 
Mather  says,  the  balance  sheets  of  the  firm's  business  and  division  of 
profits  were  given  to  each  partner,  and  invoked  no  complaint,  —  I  say 
that  in  view  of  all  this  no  court  would  be  justified  in  unsettling  this 
deliberate  adjustment  of  the  partnership  affairs,  unless  in  case  of  fraud 
or  gross  mistake.     No  such  fraud  or  mistake  is  apparent. 

But  the  complainant  insists  that,  by  the  sale  made  by  the  old  firm  to 
the  new  firm  in  1889,  all  the  capital  contributed  by  the  parties  to  this 
suit  to  the  firm  business  was  paid,  and  therefore  the  real  estate  left 
remaining  must  be  divided  as  profits.     The  legal  ground  upon  which 
it  is  sought  to  raise  this  insistence  is  well  established.     Upon  the  dis- 
solution of  a   partnership,   after  the   payment  of  firm   liabilities,  the 
amounts  contributed  as  capital  by  each  partner  are  to  be  paid.     If 
there  is  a  surplus  it  must  be  divided  as  profits,  and  if  there  is  a  deficit 
the  loss  must  be  borne  in  the  same  ratio.     Mr.  Justice  Lindley,  in  his 
work  on  Partnership  (margl.p.  402),  lays  down  the  following  rules  for 
the  adjustment  of  partnership  accounts  upon  dissolution.     The  assets 
are  to  be  applied  (1)  in  paying  the  debts  and  liabilities  of  the  firm  to  non- 
partners  ;  (2)  in  paying  to  each  partner  ratably  what  is  due  from  the 
firm  to  him  for  advances,  as  distinguished  from  capital ;  (3)  in  paying 
to  each  partner  ratably  what  is  due  from  the  firm  in  respect  of  capital ; 
(4)  the  ultimate  residue,  if  any,  will  then  be  divisible  as  profits  between 
the  partners,  in  equal  shares,  unless  the  contrary  can  be  shown. 

It  follows,  of  course,  that  if  the  contrary  is  shown  the  residue  must 
be  divided  in  accordance  with  such  showing.  There  can  therefore  be 
no  doubt  that,  upon  the  assumption  that  therewas  a  surplus, the  parties 
to  this  suit,  as  partners,  were  entitled  to  be  paid,  before  the  division  of 
such  surplus,  only  the  amount  of  capital  which  each  had  contributed. 
Nor  can  there  be  a  doubt  that  whether  by  the  enhancement  of  the  value 
of  the  real  estate,  or  from  any  other  cause,  such  surplus  existed  after 
the  payment  of  the  capital,  such  surplus  would  be  divisible  as  profits. 
Robinson  v.  Ashton,  L.  R.  20  Eq.  25. 

As  already  shown,  all  the  earnings,  so  far  as  they  could  be  calculated, 
had  either  been  drawn  out  by  each  partner,  or  had  by  him  been 
transmuted  into  capital.  Whether  there  would  remain  any  additional 
surplus  in  excess  of  the  amount  of  contributed  capital  could  only  be 
ascertained  by  a  sale  of  all  the  firm  property,  or  by  a  sale  of  a  part 
and  an  estimate  of  the  value  of  the  remainder,  or  by  an  appraisement 
of  the  value  of  all,  and  a  division  of  the  same  according  to  the  esti- 
mated value  of  the  several  portions. 

In  1889  the  old  firm,  as  already  observed,  was  dissolved  by  the 
insanity  of  C.  T.  Raynolds,  and  a  new  firm  was  formed  by  Hidden, 
Molineaux,  and  another  Raynolds.  The  committee  of  C.  T.  Raynolds 
sold  his  interest  to  the  new  firm,  and  Hidden  and  Molineaux  transferred 
their  interest  in  the  old  to  an  interest  in  the  new.     The  property  of  the 


§  2.]  FIEM    TITLE:    HOW    TAKEN    AND    HELD.  175 

old  firm  was  not  exhibited  for  sale,  but  bj-  an  agreement  between  the 
committee  of  Reynolds  and  Hidden,  Molineaux,  and  Edward  Raynolds, 
a  price  was  fixed  lor  all  the  property  of  the  firm  in  excess  of  its  liabilities, 
excepting  the  De  Floras  suit.  The  price  or  value  of  all  this  property 
was  fixed  at  $1.31G,725.  At  the  close  of  the  firm's  business  the 
amounts  due  the  partners  were  :  To  Raynolds,  8583,994.97  ;  to  Hidden. 
8587,568.28 ;  and  to  Molineaux,  $145,162.37.  The  total,  was  the 
same  as  the  amount  of  the  estimated  value  of  the  firm  assets.  The 
amount  of  such  assets  was  in  fact  diminished  by  a  deduction  made  for 
depreciation  in  value  of  the  machinery,  and  on  account  of  the  irrecover- 
able overdrafts  of  Richardson  and  Rich. 

What  was  actually  paid  to  the  committee  of  Raynolds  was  his  share 
in  the  amount  of  the  assets  remaining  after  such  deduction,  namely, 
$539,346.76.  Hidden's  share  was  estimated  and  turned  over  upon  the 
valuation  of  $556,314.52,  and  Molineaux's  at  the  valuation  of  $130. 874.- 
94.  From  these  amounts  was  deducted  the  estimated  value  of  each 
partner's  share  in  the  retained  real  estate,  and  the  balance  was  paid  for 
in  cash,  or  credits  of  different  kinds  upon  the  books  of  the  new  firm. 
Now,  in  the  agreement  of  1884  it  was  stated  that  the  amount  of  capital 
contributed  by  each  was  :  Raynolds,  $500,000  ;  Hidden,  $350,000  ;  and 
Molineaux,  $150,000.  If  the  subsequent  profits,  which  had  been 
divided,  and  credited  to  Raynolds  and  Hidden,  and  left  undrawn, 
together  with  the  undrawn  interest,  are  to  be  regarded  as  additional 
capital,  then  it  is  perceived  that  all  the  property  of  the  firm  was  needed 
to  pay  capital. 

If  it  should  be  conceded  that  the  amounts  to  the  credit  of  Raynolds 
and  Hidden  in  excess  of  the  $500,000  and  $350,000,  respectively, 
represented  profits  and  interest,  then  such  shares  of  undrawn  profits  so 
divided  and  credited,  together  with  the  interest,  were  debts  of  the  firm 
to  the  partner,  as  for  advances.  Therefore,  in  pursuance  of  the  rule 
already  announced,  the}'  were  payable  before  the  capital.  After  such 
payment  the  remainder  of  the  firm  property,  as  valued,  was  insufficient 
to  pay  the  amounts  of  capital  stated  to  have  been  contributed  in  1884. 
In  this  balance  Molineaux  would  have  the  right  to  share  in  the  ratio  of 
Vt/V,  assuming  that  his  capital  has  not  been  depleted.  If,  as  in  fact, 
it  has  been  depleted,  then  his  share  would  be  less.  The  real  estate 
representing  a  portion  of  such  balance  of  the  firm  assets  is  divisible  in 
the  same  ratio.  I  am  unable  to  perceive  how  the  complainant's  inter- 
est in  the  real  estate  can  exceed  ^fr,  upon  any  hypothesis  which  has 
been  or  can  be  propounded. 

I  will  advise  a  decree  in  conformit}-  with  these  views. 


176  THE   NATURE   OF   A   PARTNERSHIP.  [CHAP.  III. 

GOLDTHWAITE  v.  JANNEY  et  al. 

ABRAHAM  v.  SAME. 

102  Ala.  431 :  15  So.  560.     1894. 

Haralson,  J.  The  sole  question  for  decision  in  this  case,  as  re- 
spects the  rights  of  the  Abraham  petitioners,  is  whether  the  property 
in  question  belonged  to  the  individuals  composing  the  firm  of  Moses 
Bros.,  or  to  the  firm  itself;  and,  Goldthwaite,  receiver,  has,  also,  an 
equal  interest  in  the  determination  of  that  question.  If  it  was  indi- 
vidual property,  it  must  be  distributed  among  the  individual  creditors 
of  that  insolvent  firm  ;  but,  if  in  equity  it  belonged  to  the  partnership, 
it  is  to  be  distributed,  with  the  other  property  belonging  to  the  firm, 
to  its  creditors.  There  was  real  estate,  the  title  to  which  stood  in  the 
names  of  the  individual  members,  and  stocks  standing  on  the  books 
in  the  names  of  one  or  another  of  the  individuals,  schedules  of  which 
real  estate  and  stocks  are  attached  to  the  petitions.  These  lands  and 
stocks  were  included  in  the  general  assignment  of  Moses  Bros.,  and 
came  into  the  possession  of  the  appellees,  as  assignees,  and  they  claim 
them  as  the  property  of  said  firm,  subject  to  distribution  among  its 
creditors,  and  not  to  the  creditors  of  the  individuals  composing  the 
said  firm,  whereas,  the  petitioners  claim  said  property  as  belonging 
to  the  individuals  in  whose  names  the  bills  appear,  and  not  to  the  firm 
of  which  they  were  members. 

It  is  a  rule  of  universal  recognition,  that  real  estate  acquired  with 
partnership  funds,  or  on  partnership  credit  and  for  partnership  pur- 
poses, is  regarded  in  a  court  of  equity  as  partnership  property,  and 
is  subject  to  the  payment  of  partnership  debts,  in  preference  and 
priority  to  the  separate  debts  of  the  several  parties ;  and  it  is  wholly 
immaterial,  says  Judge  Story,  in  the  view  of  a  court  of  equity,  in 
whose  name  or  names  the  purchase  is  made  and  the  conveyance  taken, 
whether  in  the  name  of  one  or  of  all  the  parties,  or  in  the  name 
of  a  stranger,  alone,  or  jointly  with  a  partner.  In  all  these  cases, 
let  the  legal  title  be  where  it  may,  it  is  in  equity  deemed  partnership 
property,  not  subject  to  survivorship,  and  the  partners  are  deemed  the 
cestuis  que  trustent  therefor.  2  Story,  Eq.  Jur.  §  1207;  Hatchett  v. 
Blanton,  72  Ala.  435  ;  Little  v.  Snedecor,  52  Ala.  167  ;  Offutt  v.  Scott, 
47  Ala.  104  ;  Coles  v.  Coles,  1  Hare  &  W.  Lead.  Cas.  492,  note  ;  and 
Dyer  v.  Clark,  Id.  495,  note.  Whether  the  land  belongs  to  a  firm 
or  to  one  of  the  individuals  composing  it,  —  when  the  title  is  in  his 
name,  and  not  in  that  of  his  firm,  — it  must  be  solved  by  what  appears 
to  have  been  the  intention  of  the  parties.  Prima  facie,  ownership 
is  where  the  muniment  of  title  places  it ;  but  if  by  all  the  circumstances 
attending  the  transaction, — which  may  be  shown  by  parol,  if  there 
is  no  written  evidence, — it  is  made  to  appear  that  in  the  intention 
of  the  parties,  it  was  purchased  for  and  was  treated  as  partnershiD 


£  2.]  FIRM    TITLE:    HOW    TAKEN*    AND    HELD.  177 

property,  that  presumption  of  ownership  arising  from  the  face  of  the 
deed  will  be  overcome,  and  the  property  will  be  treated  as  belonging 
to  the  partnership.     Authorities  supra. 

It  has  been  insisted  that  when  a  partner  buys  real  estate  for  his 
firm  with  its  money,  and  takes  the  title  in  his  own  name,  which 
title  is  spread  upon  the  records  of  the  county,  those  who  have  finan- 
cial dealings  with  him  are  presumed  to  have  done  so  on  the  faith  and 
credit  of  that  property,  and  the  partnership  is  estopped  afterwards 
to  claim  the  property  against  the  claims  of  the  creditors  of  such 
partner.  This  doctrine  is  true,  certainly,  in  cases  of  bona  fide  pur- 
chasers of  such  property  for  value,  and  without  notice  that  it  belonged 
to  the  partnership.  But  it  cannot  be  extended  further,  without  over- 
throwing all  our  adjudications  on  the  subject,  as  well  as  the  general 
current  of  authorities,  everywhere.  No  man  has  a  lien  on  the  property 
of  another  with  whom  he  deals,  whether  he  is  a  member  of  a  partner- 
ship or  not,  unless  it  is  conferred  by  contract  or  by  some  rule  of  law. 
A  creditor  of  one  who  is  a  member  of  a  partnership  can  never  put 
his  hand  on  such  a  partner's  interest  in  the  firm,  until  the  assets  of  the 
firm  have  been  applied  to  the  full  payment  and  discharge  of  all  debts 
and  liabilities  of  the  partnership,  and,  after  discharging  these,  the 
residuum  is  still  held  in  trust  for  distribution  among  the  several 
partners,  according  to  their  several  interests.  A  lien  exists  in  favor 
of  each  partner  on  the  partnership  effects  to  secure  these  results, 
and  for  the  one  as  well  as  the  other.  This  lien,  as' a  general  thing, 
exists  only  in  favor  of  the  several  partners.  They  may  sell  the  firm's 
property,  may  convey  it  to  one  of  their  own  number,  may  partition 
or  divide,  and  the  lien  will  thereby  be  destroyed. 

Creditors  as  such  cannot  be  said  to  have  any  lien  on  the  partnership 
effects.  There  are  conditions  in  which  a  creditor  has  been  allowed 
to  avail  himself  of  this  quasi  lien  of  a  partner,  but  it  is  derivative 
only,  and  not  of  original  existence.  But  in  no  event  can  a  creditor  of 
an  individual  partner  acquire  any  greater  interest  in  the  assets  of 
the  firm  of  which  the  partner  is  a  member  than  the  partner  himself  is 
entitled  to,  which  is  nothing,  if  the  partnership  is  insolvent.  The  stream 
in  law,  no  more  than  in  nature,  can  rise  higher  than  its  source. 

Lindley,  in  his  work  on  Partnership,  states  the  principles  so  aptly, 
we  quote  what  he  says  on  the  subject.  Subject  to  certain  exceptions, 
within  which  this  case  does  not  fall,  he  says :  "  It  is  an  established 
rule  that  a  partner  in  a  bankrupt  firm  shall  not  prove  in  competition 
with  the  creditors  of  the  firm.  They  are,  in  fact,  his  own  creditors, 
and  he  cannot  be  permitted  to  diminish  the  partnership  assets  to  the 
prejudice  of  those  who  are  not  only  creditors  of  the  firm,  but  also 
of  himself.  If,  therefore,  a  partner  is  a  creditor  of  a  firm,  neither 
he  nor  his  separate  creditors  (for  they  are  in  no  better  position  than 
himself)  can  compete  with  the  joint  creditors  as  against  the  joint  estate. 
Lord  Mardwicke,  it  is  true,  in  Ex  parte  Hunter,  1  Atk.  223,  allowed 
this  to  be  done  ;  but  that  case  has  not,  in  this  respect,  been  followed, 

1_' 


178  THE    NATURE    OF   A   PARTNERSHIP.  [CHAP.  IIL 

and  has  long  been  considered  as  overruled."  2  Lindl.  Partn.  p.  720, 
§  721,  and  authorities  cited;  Hart  v.  Clark,  54  Ala.  490;  Warren  v. 
Taylor,  60  Ala.  218;  Farley  v.  Moog,  79  Ala.  153;  Goldsmith  v. 
Eichold,  94  Ala.  116;  Buchan  v.  Sumner,  2  Barb.  Ch.  167;  Jones 
v.  Fletcher,  42  Ark.  422 ;  Paige  v.  Paige,  71  Iowa,  318 ;  Story, 
Partn.  §§  97,  360,  361  ;   13  Am.  &  Eng.  Enc.  Law,  611  ;   17  Id.  1195. 

The  written  agreement  executed  between  the  partners  on  the 
17th  May,  1879,  recites  that,  in  the  course  of  their  business,  the 
three  brothers  composing  the  firm  of  Moses  Bros,  had  acquired  titles 
to  real  estate  in  the  individual  names  of  the  one  or  the  other  of  said 
parties,  and  it  was  provided  by  that  agreement,  that  all  real  estate 
or  interest  therein  then  held  by  either  of  the  members  of  that  firm, 
in  his  individual  name,  was  the  property  of  the  partnership,  having 
been  brought  into  the  firm,  or  bought  with  its  funds  for  partnership 
purposes.  The  testimony  of  M.  C,  H.  C,  and  A.  H.  Moses,  taken 
before  the  registrar,  shows  that  the  acquisition  of  real  estate,  after  that 
agreement  was  signed,  continued  as  before,  viz.,  that  in  many  instances 
the  title  was  taken  in  the  name  of  the  partner  effecting  the  transaction, 
but  all  real  estate,  whether  the  title  was  so  taken,  or  in  the  name  of  the 
firm,  was  bought  for  the  firm,  paid  for  out  of  its  funds,  and  was  taken  and 
treated  as  its  property,  and  not  as  the  property  of  the  member  in  whose 
name  the  title  stood,  excepting  the  residences  of  H.  C.  and  A.  H. 
Moses  in  Montgomery',  and  the  residence  of  said  A.  H.  Moses  in 
Sheffield,  and  a  lot  given  to  him  in  Sheffield  by  the  Sheffield  Iron 
&  Coal  Company.  A  careful  review  of  all  the  evidence  satisfies 
us  that  the  decree  of  the  Chancery  Court  on  this  question  was  correct. 

Let  us  now  refer  specially  to  the  petition  of  Robert  Goldthwaite,  as 
receiver  in  the  case  of  Paul  v.  Knox,  in  which  it  is  stated  that 
petitioner's  claim  had  been  adjudicated  and  allowed  in  this  case, 
for  $18,108.11,  as  a  claim  against  the  estate  of  II.  C.  Moses;  that 
said  claim  arose  on  account  of  trust  funds  in  said  Moses'  hands  as 
a  receiver  in  the  case  of  Paul  v.  Knox,  which  he  advanced  to  the  firm 
of  Moses  Bros.,  of  which  he  was  a  member,  without  taking  the 
security  required  by  the  court ;  that  Moses  Bros,  were  indebted  to 
said  H.  C.  Moses  for  said  advances  at  the  time  of  the  general  assign- 
ment made  byT  them  and  as  members  of  said  firm,  and  are  still  indebted 
to  him  for  the  same,  and  at  the  time  of  said  assignment,  "  besides  the 
property  belonging  to  H.  C.  Moses  individually,  and  to  which  he  had 
the  legal  title,  he  also  held  the  legal  title  to  some  real  estate,  which 
in  equity  belonged,  after  the  adjustment  and  payment  of  the  claims 
of  said  II.  C.  Moses  against  said  firm,  to  said  firm  of  Moses  Bros. ; 
that  as  between  said  H.  C.  Moses  as  an  individual  and  the  said  firm 
of  Moses  Bros.,  the  said  H.  C.  was  at  most  the  trustee  of  the  legal 
title  of  the  property  so  held  by  him  for  said  firm  after  the  adjustment 
and  payment  of  the  said  debt  due  by  said  firm  to  him,  on  account  of 
said  funds  so  advanced  by  him  for  the  use  of  said  firm,  and  that  said 
property  to  which   he,  said  H.   C.  Moses,    thus    held  the  legal  title 


k  2.]  firm  title:  how  taken  and  held.  179 

individually,  was  the  individual  property  of  said  Henry  Moses  in 
equity,  to  the  amount  and  extent  of  said  advances,  for  said  firm,  and 
being  so,  petitioner  as  the  creditor  of  said  Henry  C.  Moses  and  the 
holder  of  said  debt  is  entitled  to  have  said  property  regarded  as  the 
individual  property  of  said  Henry  C.  Moses,  and  to  be  paid  out  of 
the  proceeds  thereof,  if  the  same  is  sufficient  therefor."  We  have 
quoted  this  language  of  the  petition  to  show  the  more  plainly  the 
position  and  contention  of  the  petitioner.  In  short,  this  is  the  state- 
ment of  the  proposition,  that  real  estate  belonging  to  a  partnership,  but 
standing  in  the  name  of  one  of  the  partners  at  the  time  of  the  insol- 
vency of  the  firm,  is  the  individual  property  of  such  partner  to  the 
extent  of  his  claim  against  the  firm,  so  that,  to  such  extent,  such 
property  must  be  distributed  among  his  individual  creditors,  rather 
than  among  the  creditors  of  the  partnership. 

When  H.  C.  Moses  lent  the  money  in  his  hands,  as  receiver,  to 
Moses  Bros.,  he  was  guilty  of  a  breach  of  trust,  in  which  his  firm 
participated,  if  they  knew  the  character  of  the  fund  that  was  lent 
them.  By  so  doing  he  incurred  a  personal  liability  on  himself  to 
account  for  the  money,  and  the  borrowers,  if  chargeable  with  a  knowl- 
edge of  the  violated  duty,  incurred  a  similar  pecuniary  liability ;  but, 
in  contracting  the  debt,  even  if  they  participated  in  the  breach  of  duty, 
—  as  we  before  now,  in  reference  to  this  same  matter,  decided,  —  that 
fact  did  not  change  the  nature  of  the  obligation,  so  as  to  fasten  a  lien 
on  their  property  for  its  payment.  A  lien,  as  we  have  said,  is  never 
an  incident  of  a  contract  or  money  obligation  unless  made  so  by  the 
contract  or  by  some  rule  of  law.  The  proposition  submitted  does  not 
differ  materially  from  the  same  question  presented  and  decided  in 
cases  heretofore  before  us  on  appeal.  It  cannot  be  sustained  without 
overruling  these  and  many  other  cases  in  this  and  other  courts. 
Goldthwaite  v.  Ellison,  99  Ala.  497;  Ellison  v.  Moses,  95  Ala.  221; 
17  Am.  &  Eng.  Enc.  Law,  1195,  and  notes  2,  3. 

What  we  have  said  is  equally  applicable  to  each  of  the  cases  set 
forth  in  the  transcript, — that -of  Robert  Goldthwaite,  receiver,  v. 
Janney  &  Cheney,  trustees,  etc.,  and  of  Adolph  Abraham  and  others 
against  same  parties.  There  was  no  error  in  the  rulings  of  the  court 
below,  and  the  decrees  in  each  case  must  in  all  respects  be  affirmed. 
Let  the  appellants,  each,  pay  one-half  of  the  costs  of  this  appeal. 

Affirmed. 


WOODWARD-HOLMES   CO.  v.   NUDD  et  al. 

58  Minn.  236  :  59  N.  W.  1010.     1894. 

MrccriELL,  J.  The  effect  of  the  findings  of  the  trial  court  is  that  the 
real  estate  which  is  the  subject  of  this  action  was  formerly  the  property 
<>r  a  manufacturing  co-partnership  composed  of  defendant's  husband  and 


180  THE    NATUKE    OF   A    PARTNERSHIP.  [CHAP.  III. 

one  Holmes,  having  been  purchased,  paid  for,  and  used  by  the  firm  as 
a  site  for  its  manufacturing  plant,  the  title  being  taken  in  the  individual 
names  of  the  partners  ;  that,  in  an  action  brought  by  one  partner  against 
his  co-partner  to  dissolve  the  partnership  and  wind  up  its  affairs,  the 
property  was  oi'dered  sold  as  one  parcel;  the  proceeds  to  be  applied  in 
payment  of  the  firm  debts,  and  the  surplus,  if  any,  divided  between  the 
partners  according  to  their  respective  rights;  that  at  such  sale  it  was 
sold  to  plaintiff's  grantor  for  an  amount  somewhat  in  excess  of  the  sum 
required  to  pay  the  debts  of  the  firm  ;  that  this  surplus  was  distributed 
between  the  partners,  no  part  of  it  being  paid  to  defendant ;  that  de- 
fendant was  not  a  part}*  to  the  action,  and  has  never  joined  in  any  con- 
veyance of  the  property.  The  defendant,  as  wife  of  one  of  the  partners, 
claimed  an  inchoate  interest  in  an  undivided  half  of  the  premises,  and 
this  action  was  brought  to  determine  this  adverse  claim. 

It  is  well  known  that  the  English  doctrine  was  that  partnership  real 
estate  is  considered  as  personal  property  for  all  purposes.  The  doctrine 
of  the  American  courts  on  the  subject  is  more  restricted.  Some  of  the 
earlier  decisions  in  New  York  and  Massachusetts  went  almost  to  the 
length  of  entirely  subverting  the  equity  doctrine  prevalent  in  England  ; 
but,  as  remarked  by  Chancellor  Kent,  the  other  American  decisions 
are  not  inconsistent  with  the  more  correct  and  improved  view  of  the 
English  law.  It  is  now  held  with  practical  unanimity  by  the  American 
courts  that,  if  partnership  capital  be  invested  in  land  for  the  benefit  of 
the  company,  all  the  incidents  attached  to  it  which  belong  to  an}'  other 
stock,  so  far  as  consistent  with  the  statute  of  frauds  and  the  technical 
rules  of  conveyancing,  and  that  it  will  be  treated  as  personal  estate 
until  it  has  performed  all  its  functions  to  the  partnership,  and  thereby 
ceases  to  be  any  longer  partnership  property,  and  until  then  it  is  not 
subject  to  either  dower  or  inheritance,  but  that,  after  all  the  purposes 
of  the  partnership  have  been  thus  accomplished,  whatever  land  remains 
in  specie  will  be  regarded  as  real  estate.  The  question  is  at  what  pre- 
cise moment  is  it  reconverted  into  real  estate,  or,  to  speak  more  accu- 
rately, does  it  resume  all  the  attributes  and  incidents  of  real  property? 
We  think  the  answer  is,  the  moment  the  partnership  is  terminated  and 
wound  up  by  judgment  or  agreement,  and  it  is  determined  that  it  no 
longer  forms  a  part  of  the  partnership  stock,  and  is  not  required  for 
its  purposes.  When  a  partnership  is  dissolved,  and  its  affairs  wound 
up  and  completely  ended,  and  an}*  land  remains  in  specie,  unconverted, 
this  must  be  deemed  a  determination  that  it  is  no  longer  a  part  of  the 
co-partnership  stock,  and  an  election  to  hold  it  thereafter,  individually, 
as  real  estate. 

During  the  continuance  of  the  partnership  the  partners  can  con- 
vey or  mortgage  it,  in  the  course  of  their  business,  whenever  the}' 
see  fit,  without  their  wives  joining  in  the  conveyance  or  mortgage, 
and  the  wives  would  have  no  dower  or  other  interest  in  it.  This  is 
one  of  the  very  objects  of  treating  partnership  real  estate  as  personal 
property  ;  for  otherwise  the  business  of  the  firm  might  be  stopped,  and 


5  2.]  FIBM    TITLE  :    HOW    TAKEN    AND    HELD.  181 

the  partners  unable  to  realize  on  the  assets  of  the  firm,  by  reason  of 
the  wife  of  one  of  them  refusing  to  join  in  the  conveyance  or  mortgage. 
Thev  have  the  same  power  of  disposition  over  it  for  the  purposes  of  a 
dissolution  of  the  partnership,  the  payment  of  its  debts,  and  the  distri- 
bution or  division  of  the  capital  among  themselves  ;  for  until  that  is 
done  the  property  has  not  fulfilled  its  functions  as  personalty,  or  ceased 
to  be  partnership  property.     And  what  the  partners  may  thus  do  volun- 
tarily the  court  may  do  for  them,  in  an  action  brought  to  dissolve  the 
partnership  and  wind  up  its  affairs.     As  the  defendant  was  not  a  party 
to  the  former  action,  she  is,  of  course,  not  estopped  by  it,  nor  is  it 
evidence  against  her  of  anything  except  of  the  fact  of  its  own  rendition. 
But  the  material  fact  remains  that  in  the  process  of  the  dissolution  of 
the  firm,  and  the  winding  up  of  its  affairs,   in  an  action  for  that  pur- 
pose, the  land  was  sold  and  converted  into  money,  and   the   money 
distributed  among  the  creditors  and  partners  according  to  law.     Upon 
these  facts,  under  the  rules  already  announced,  the  land  in  the  hands 
of  the  purchaser  is  not  subject  to  any  inchoate  interest  of  the  wives  of 
the  partners. 

The  error  which  lies  at  the  foundation  of  the  whole  argument  of  de- 
fendants' counsel  is  in  the  assumption  that,  at  the  time  of  the  purchase 
of  this  property,  it  became  the  individual  real  estate  of  the  husband, 
and  that  the  inchoate  right  of  the  wife  under  the  statute  immediately 
attached,  subject  only  to  a  lien  for  the  payment  of  partnership  debts. 
This  is  not  correct,  and  none  of  the  authorities  that  we  have  found  so 
hold.  The  fact  is  that  only  so  much  of  it  becomes  the  individual  real 
estate  of  the  partner  as  remains  in  specie,  unconverted,  after  all  the  pur- 
poses of  the  partnership  have  been  entirely  fulfilled,  and  it  is  only  to  such 
of  it  that  any  inchoate  interest  of  the  wife  ever  attaches.  If  counsel's 
contention  is  correct  the  partners  could  never,  even  during  the  active 
life  of  the  co-partnership,  convey  perfect  title  to  partnership  land  with- 
out their  wives  joining,  except  to  the  extent  actually  necessary  to  pay 
existing  debts  of  the  firm.  This  would  practically  involve,  in  every 
case  where  one  of  the  wives  refused  to  join  in  a  conveyance,  the  neces- 
sity of  a  suit  to'  which  she  is  made  a  party,  in  order  to  determine 
whether  the  sale  was  necessary  to  pay  debts.  Any  such  rule  would 
hamper  the  business  of  the  firm  to  an  extent  that  might  practically 
defeat  the  purposes  of  the  partnership. 

The  court  below  seems  to  have  laid  special  stress  upon  the  fact  that 
it  was  not  made  to  appear  on  the  trial  that  it  was  necessary  to  have 
sold  all  this  property  to  pay  the  debts  of  the  firm,  but  this  is  immaterial, 
either  under  the  view  of  the  law  which  we  have  taken,  or  under  that 
urged  by  counsel.  In  fact,  we  understood  counsel  to  frankly  concede 
this  on  the  argument.  Upon  the  facts  found,  judgment  ought  to  have 
been  ordered  in  favor  of  the  plaintiff,  adjudging  that  defendant  has  no 
interest,  inchoate  or  otherwise,  in  the  hind. 

Cause  remanded,  witli  directions  i<>  the  court  below  to  render  judg« 
ment  accordingly. 


'B  J 


182  THE    NATURE   OF   A   PARTNERSHIP.  [CHAP.  IIL 

DAVIS   et   al.   v.    SMITH  et  al. 

82  Ala.  198.     1887. 

Clopton,  J.     The  land  sued  for  was  formerly  the  property  of  the 
firm  of  Lyman  &  Davis,  purchased  with  partnership  funds,  and  used 
for  partnership  purposes.     The  partnership  having  been  dissolved  by 
the  death  of  Davis,  Lyman,  as  surviving  partner,  sold  and  conveyed 
the  land,  in  May,   1876,  in  part  payment  of  a  firm  debt,  to  Malone  & 
Foote,  under  and  through  whom  the  defendants  claim  to  hold.     The 
appellants,  who  bring  the  action,  claim  title  as  the  heirs  of  Davis,  and 
defendants  concede  their  right  to  recover,  unless  the  conve}Tance  of  the 
surviving  partner  passed  the  legal  title  to  the  grantees.    The  solution  of 
the  question  depends  on  the  construction  of  a  clause  contained  in  sup- 
plemental'}" articles  of  co-partnership  entered  into  November  28,  1867, 
which  is  as  follows :   "  That  all  the  real  estate  whatever,  belonging  to 
the  said  firm  of  Lyman  &  Davis  (the  same  having  been  purchased 
solely  with  partnership  funds),  shall  be,  and  is  hereby  considered  as 
part  of  the  joint-stock  and  funds  of  said  firm  of  Lyman  &  Davis,  and 
as  possessing  all  the  incidents  and  liabilities  of  partnership  funds  and 
personal  property,  and  is  hereby  by  the  parties  fully  impressed  with 
such  incidents  and  liabilities." 

To  a  better  and  clearer  understanding  of  the  purport  and  intention 
of  this  clause,  it  should  be  stated  that  the  partnership  was  originally 
formed  in  1865,  to  carry  on  a  mercantile  business  in  Selma.  The  de- 
clared purposes  of  the  supplementary  articles  are  to  provide  for  circum- 
stances which  had  arisen  and  were  not  provided  for  by  the  previous 
agreement ;  for  the  extension  of  their  joint  business  to  manufacturing 
in  Montevallo ;  and  in  the  event  of  the  death  of  one  of  the  partners, 
for  continuing  the  business  for  a  limited  period,  and  the  final  settle- 
ment of  the  affairs  of  the  firm.  By  an  instrument  in  writing,  made  by 
Davis,  December  18,  1867,  which  he  designates  a  codicil,  it  is  declared 
that  specified  parts  of  the  supplementary  articles,  being  the  provisions 
relating  to  the  continuance  and  settlement  of  the  partnership  business 
after  the  death  of  one  of  the  partners,  including  the  clause  above 
quoted,  "  shall  be  taken  and  considered  as  my  last  will  and  testament, 
as  to  all  matters  and  things  therein  contained  ;  "  and  both  instruments 
were  duly  probated  as  his  will,  which  is  conclusive  as  to  their  testa- 
mentary character.     Matthews  v.  McDade,  72  Ala.  377. 

By  the  settled  doctrine  in  this  State,  the  real  estate  of  a  partnership 
is  in  equity  considered  as  personal,  so  far  as  may  be  necessary  for  the 
payment  of  the  debts,  or  for  an  adjustment  and  equal  settlement 
between  the  partners.  Upon  the  dissolution  of  the  partnership  by  the 
death  of  a  member,  the  survivor  is  charged  with  the  duty  of  paying  the 
debts.  To  enable  him  to  discharge  this  duty,  he  has  the  right  to  dis- 
pose of  the  real  estate  for  this  purpose.  While  his  deed  will  not  pass 
the  legal  title,  it  will  convey  an  equity,  through  which  the  purchaser 


§  2.]  FIRM   TITLE  :   HOW   TAKEN    AND   HELD.  1S3 

may  compel  the  heir-at-law  of  the  deceased  partner  to  perfect  the  pur- 
chase by  a  conveyance  of  the  legal  title  which  he  holds  in  trust  to  pay  the 
debts.  Andrews  v.  Brown,  21  Ala.  437;  Espy  v.  Comer,  7G  Ala.  501. 
In  the  case  last  cited  it  is  said  :  '-  But  this  is  purely  an  equitable  doc- 
trine, and  the  legal  title,  with  all  the  characteristics  of  realty,  attaches 
to  it,  until  it  is  so  applied  to  partnership  wants."  In  the  absence  of 
an  express  provision  in  the  contract  of  partnership,  the  real  estate 
'•  only  becomes  personalty  pro  tat/to."  The  intent  of  the  understand- 
ing and  direction,  that  the  real  estate  shall  be  considered  as  possessing 
all  the  characteristics  and  liabilities  of  personal  property,  and  impress- 
ing it  with  such  incidents  and  liabilities,  is  declared  b}-  the  introductory 
phrase  immediately  preceding,  "  for  the  purpose  of  facilitating  and 
simplifying  the  settlement  and  winding  up  the  said  firm."  The  mani- 
fest design  is  to  impress  the  real  estate  with  the  incidents  of  personal 
property,  both  at  law  and  in  equity,  as  between  the  parties  to  convert 
it  into  personalty  ;  not  an  equitable  conversion  pro  tanto,  but  a  con- 
version in  toto,  for  the  purpose  of  closing  and  settling  the  partnership 
affairs  ;  and  to  confer  rights  and  powers  on  the  surviving  partner  which 
are  not  incident  to  the  relation  nor  implied  in  the  mere  contract  of 
partnership. 

The  parts  of  supplementary  articles,  having  reference  to  the  contin- 
gency of  the  death  of  one  of  the  partners,  make  special  provisions  for 
the  management  and  settlement  of  the  business  in  Selma,  and  authorize 
the  surviving  partner  to  sell  the  real  estate  situated  in  that  place,  at 
such  time  and  on  such  terms  as  he  may  consider  best  for  the  interest  of 
all  concerned,  requiring  the  personal  representative  of  the  deceased 
partner  to  join  in  an}*  deed  necessary  to  convey  a  perfect  title  both  at 
law  and  in  equity.  If  he  did  not  deem  it  advisable  to  sell  the  real 
estate  in  Selma,  when  he  closed  the  mercantile  business,  he  was  author- 
ized to  lease  it ;  but  in  no  event  should  a  sale  be  postponed  beyond 
five  years  from  the  death  of  the  deceased  partner.  The  surviving  part- 
ner is  authorized  to  take  the  entire  interest  in  certain  designated  lots 
in  Montevallo  at  a  fixed  price,  and  the  personal  representative  of  the 
deceased  partner  is  required  to  make  a  conveyance  if  he  elected  to 
take,  but  no  provision  is  made  for  selling  to  others.  The  firm  owning 
other  real  estate,  which  includes  the  land  sued  for,  after  making  the 
foregoing  specific  provisions,  which  for  some  reasons  were  deemed 
specially  material,  the  partners  incorporated  the  general  clause  above 
quoted,  relating  to  all  the  real  estate.  What  is  the  legal  effect  of  such 
stipulation  in  a  contract  of  co-partnership?  Though  at  first  there  was 
opposition  in  England  to  recognizing  realty  as  a  part  of  partnership 
stock,  in  Thornton  v.  Dixon,  3  Brown  Ch.  199,  Lord  Thurlow  said, 
that  if  the  agreement  had  been  that  the  lands  should  be  valued  and 
sold,  it  would  have  converted  it  into  personalty  ;  but  that  the  agree- 
ment in  the  case  before  him  was  not  sufficient  to  vary  the  nature  of  the 
property.  Here  is  a  distinct  recognition  of  the  authority  of  the  part- 
ners to  effect  a  conversion  by  agreement.     The  courts  being  forced,  by 


184  THE    NATURE    OF    A    PARTNERSHIP.  [CI.IAP.  IiL 

the  necessities  of  trade,  to  hold  that  realty  may  become  a  part  of  the 
partnership  stock,  by  a  series  of  subsequent  decisions,  the  doctrine  was 
established  ;  and  it  is  now  the  settled  rule  in  England,  that  when  real 
property  is  purchased  with  partnership  funds  for  partnership  purposes, 
the  transaction,   by  force  of  the  contract,  in  the  absence  of  a  special 
stipulation,  makes  it  personalt}',  effecting  a  conversion  out  and  out. 
Darby  v.  Darby,  3  Drew.  495.     The  doctrine  is  rested  on  the  ground 
that  by  the  contract  of  partnership  all  the  firm  property,  real  and  per- 
sonal,  is  to  be  sold  on  a  dissolution.     This   goes   further  than    the 
American  rule,   by  which  the  real  estate  not  wanted  for  partnership 
purposes  to  pay  the  debts,   or  to  equalize  the  benefits  and  burdens 
between  the  partners,  remains  realty,  subject  to  all  incidents,  as  such, 
in  the  hands  of  those  holding  the  legal  title.     Nevertheless  the  parties 
may,  by  express  agreement,  stamp  it  with  the  character  and  qualities 
of  personal  property.     The  supplementary  articles,  by  the  express  and 
special  stipulations  of  the  deceased  partner  under  which  he  became 
joint  owner,  impress  the  real  estate  with  "  all  the  incidents  and  liabili- 
ties of  partnership  funds  and  personal  property,"  thereby  placing  it  on 
the  same  legal  footing  and  in  the  same  legal  position  as  the  personalty. 
The  specific  performance  of  the  stipulations  of  the  contract,  in  respect 
to  the  settlement  of  the  business  and  the  disposition  of  the  firm  prop- 
erty after  the  death  of  one  of  the  partners,  would  itself  convert  the  real 
estate  into  personal  assets.     Wilcox  v.  Wilcox,  13  Allen,  352. 

Such  being  its  effect  and  operation,  what  are  the  rights  and  powers 
of  the  surviving  partner,  under  such  contract  of  co-partnership?     In 
determining  these,  we  are  not  left  to  imply  them  from  the  supplemen- 
tary  articles  alone,  for  in  connection  therewith,  the  codicil  may  be 
properly  considered.      The  testator   prefaces   the  dispositions  of  his 
individual  property,  as  made  by  the  codicil,  with  the  declaration  that 
by  the  supplementary  articles  he   "did  provide,  give,,  and  grant   all 
necessary  arrangements,  directions,  and  powers  for  the  conduct  and 
management,  control  and  winding  up  and  settlement"  of  all  the  firm 
matters.     The  partners  exhibit  entire  confidence  in  the  business  capac- 
ity and  integrity  of  each  other ;  and  the  predominant  purpose  is  to 
facilitate  and  simplify  the  settlement  of  the  partnership  affairs  by  the 
survivor,  on  whom  the  right  and  duty  are  devolved  by  both  the  will 
and  the  law.     To  consummate  this  controlling  object  the  parties  agreed 
to  impress  the  real  estate  with  all  the  incidents  and  liabilities  of  part- 
nership personal  property,  and  directed  that  it  should  be  considered  a 
part  of  the  joint-stock  and  funds,  and  as  possessing  all  such  incidents 
and  liabilities.     The  question  arises,  what  are  the  incidents  and  liabil- 
ities which  attach  to  the  personalty,  and  not  to  the  realty,  belonging 
to  a  partnership?     They  may  be  regarded  as  legal  in  their  nature  and 
character,  as  distinguished  from  merely  equitable.     On  dissolution  by 
the  death  of  a  member,  the  survivor  has  the  right  and  power  to  sell 
and  pass  the  legal  title  to  the  personal  property,  though  there  may  be 
no  firm  debts,  and  a  sale  is  necessary  only  for  the  settlement  of  the 


§2-] 


firm  title:  how  taken  and  held.  185 


partnership,  and  the  distribution  of  the  assets  ;  but  he  has  a  right  to 
sell  the  real  estate  only  when  required  for  the  payment  of  debts,  or  for 
an  adjustment  and  equalization  of  the  partnership  accounts,  and  then 
can  convey  only  an  equitable  title.  Both  kinds  of  property  are  subject 
to  the  debts,  but  the  primary  liability  rests  on  the  personal  assets,  on 
the  insufficiency  of  which  depends  the  right  of  the  survivor  to  dispose 
of  the  real  property,  and  without  the  exhaustion  of  which  a  court  of 
equity  will  not  charge  the  realty  in  favor  of  a  creditor. 

The  parties  evidently  contemplated  and  designed  that  in  winding  up 
and  settling  the  firm  matters,  all  the  property,  both  real  and  personal, 
should  be  sold  by  the  survivor,  without  reference  to  the  necessity  of 
its  use  to  pay  debts,  or  to  adjust  the  accounts.  The  general  concep- 
tion is  the  conversion  of  the  real  into  personal  property,  both  possess- 
ing the  same  incidents  and  liabilities,  so  that  the  real  ami  personal 
assets  shall  constitute  a  joint-stock,  which  or  any  part  whereof  the 
survivor  had  the  right  to  dispose  of  in  his  discretion,  and  as  he  deemed 
most  advisable  for  the  interests  of  all  parties,  to  remove  impediments 
to  speedy  and  advantageous  sales,  and  to  relieve  the  survivor  of  the 
difficulties  and  embarrassments  which  might  prolong  a  full  and  com- 
plete settlement.  Unless  the  clause  under  consideration  makes  the 
realty  chargeable  with  the  debts  equally  with  the  personalty,  whether 
at  law  or  equity,  unless  it  gives  the  survivor  the  power  to  sell  the  real 
estate  the  same  as  the  personal  property,  it  is  without  meaning,  and 
has  no  field  of  operation.  No  precise  form  of  words  is  necessary  to 
create  a  power  ;  it  will  be  implied  when  the  intention  is  manifest  to 
enable  an  execution  of  the  trusts  devolved.  As  the  intent  is  apparent, 
that  all  the  property  of  the  partnership,  real  and  personal,  shall  be  sold 
for  the  purpose  of  settling  its  affairs,  and  that  a  division  of  the  residue 
should  be  made  by  the  survivor  between  the  parties  entitled,  the  power 
to  sell  necessarily  follows.     Winston  v.  Jones,  6  Ala.  550. 

This  conclusion  is  strengthened  when  the  codicil  and  the  supple- 
mentary contract  are  considered  together  in  respect  to  the  appointment 
of  executors.  By  the  contract  it  is  stipulated  that  the  surviving  part- 
ner shall  be  nominated  co-executor  with  any  other  person  appointed  by 
any  codicil  or  will  thereafter  made.  In  pursuance  thereof,  the  testator, 
by  the  codicil,  nominated  John  T.  Davis,  his  son,  and  the  surviving 
partner  executors,  "  with  full  and  plenary  powers  to  sell  and  convey 
real  estate,  and  to  do  all  acts  needful  to  carry  out  the  true  intent  and 
meaning  of  this  codicil,  and  the  last  will  and  testament  to  which  it  is 
added  as  aforesaid."  When  it  is  observed  that  the  power  to  settle  the 
partnership  is  a  personal  trust  vested  in  the  surviving  partner  ;  that  the 
personal  representative,  other  than  the  survivor,  is  required  only  to 
unite  in  and  make  conveyance  in  specified  instances  ;  and  that  full  and 
plenary  powers  are  conferred  <<>  nomine  to  sell  and  convey  real  estate, 
and  to  do  all  acts  necessary  to  carry  into  effect  the  intent  and  meaning 
of  the  supplementary  articles  —  the  intention  of  the  testator  cannot  be 
misunderstood  nor  mistaken.     It  is  apparent  that  in  respect  to  the  sale 


186  THE   NATUKE    OF   A    PARTNERSHIP.  [CHAP.  III. 

of  the  firm  property  the  power  was  not  intended  to  be  a  joint  power, 
from  the  fact  that  the  son  was  a  minor,  and  another  person  is  appointed 
to  act  as  executor  until  he  attained  his  majority,  upon  whom  no  special 
power  is  conferred,  and  who  is  exempt  from  responsibility  except  for 
assets  actually  received  by  him.  His  active  duties  relate  to  the  individ- 
ual estate  of  the  testator  ;  and  there  is  no  provision  for  continuing  the 
partnership  business  except  at  the  discretion  of  the  survivor,  whose 
principal  and  constant  aim  shall  be  as  speed}-  settlement  as  maj*  be 
consistent  with  the  interests  of  all  parties. 

AVe  hold  that  b}'  the  clause  impressing  the  real  estate  with  all  the 
incidents  and  liabilities  of  partnership  personal  property,  in  connection 
with  the  other  provisions  of  the  will,  considered  as  an  entirety,  the 
same  power  is  conferred  on  the  surviving  partner  to  sell  the  real  which 
he  has  by  law  to  sell  the  personal  property,  and  that  his  conveyance 
as  such  conveys  the  legal  title,  unless  when  otherwise  specially 
provided. 

Affirmed. 


POND   v.   KIMBALL. 
101  Mass.  105.     1869. 

Ames,  J.  This  report  finds  that  the  property  described  in  the  plain- 
tiffs' declaration  belonged  to  them  as  co-partners.  It  had  been  pro- 
cured by  them  to  be  used  in  their  shop,  as  appropriate  to  and  usual  in 
the  prosecution  of  their  joint  business.  A  portion  of  it  falls  within  the 
description  of  "  tools  and  implements  "  necessaiy  to  the  prosecution  of 
their  trade  and  business,  and  another  portion  under  that  of  "  materials 
and  stock "  necessary  for  the  same  purpose,  and  intended  to  be  used 
or  wrought  therein.  The  claim  of  the  plaintiffs  is,  that  on  both  these 
grounds  a  portion  at  least  of  the  property  was  exempt  from  attach- 
ment ;  and  that  the  defendant  is  liable  in  this  action  for  the  wrongful 
act  of  his  deputy  in  making  such  attachment. 

This  claim,  then,  raises  the  question  whether  the  exemption  of 
certain  property  from  attachment,  provided  for  in  the  Gen.  Sts.  c.  133, 
§  32,  cl.  5,  6,  and  c.  123,  §  32,  applies  to  the  case  of  property  belong- 
ing jointly  to  two  or  more  co-partners.  It  does  not  appear  that,  at  the 
time  of  the  attachment,  the  plaintiffs  had  dissolved  partnership,  or  had 
divided  their  joint  property,  or  had  had  a  general  settlement  and  wind- 
ing up  of  their  business.  We  agree  with  the  plaintiffs'  counsel,  that 
the  statute  is  humane  and  beneficial  in  its  purpose  and  operation,  and 
fairly  entitled  to  as  liberal  a  construction  as  can  be  given  it,  consist- 
ently with  its  true  and  just  interpretation.  There  are  many  difficulties, 
however,  in  the  way  of  applying  it  to  the  case  of  co-partners  and  joint 
owners,  and  these  difficulties  we  find  to  be  insuperable.  Property  pur- 
chased with  the  joint  funds  of  the  firm,  and  constituting  a  portion  of 
its  capital,  must  necessarily  be  subject  to  all  the  incidents  of  partner- 


$  3.]  FIRM    TITLE   DEVESTED    BY    ACT    OF    THE    FIRM.  1S7 

ship  property.  On  the  decease  of  one  member  of  the  firm,  it  would 
go  to  the  surviving  member,  and  he  would  have  a  right  to  hold  it,  to 
be  used  in  settling  the  affairs  of  the  concern,  and  paying  its  debts.  In 
the  case  of  numerous  partners,  can  it  be  said  that  each  would  have  the 
right  to  claim,  as  exempt  from  attachment  for  the  joint  debts,  one  hun- 
dred dollars'  worth  of  tools  and  implements,  and  another  hundred 
dollars'  worth  of  materials  and  stock  ;  or  is  the  whole  firm  to  be  con- 
sidered as  one  debtor  only?  Does  the  exempted  property  in  that  case 
belong  to  the  partners  jointly,  or  does  each  take  a  separate  share?  It 
appears  to  us  that  the  statute  is  intended  to  apply  only  to  the  case  of  a 
single  and  individual  debtor.  The  exemption  which  it  gives  is  strictly 
personal.  The  statute  speaks  in  the  singular  number  throughout,  un- 
less possibly  the  clause  as  to  fishermen  (Gen.  Sts.  c.  133,  §  32,  cl.  9) 
be  an  exception.  Its  apparent  object  is  to  secure  to  the  debtor  the 
means  of  supporting  himself  and  his  family,  by  following  his  trade  or 
handicraft  with  tools  belonging  to  himself.  It  also  provides  that  his 
family  are  to  be  secured  in  the  enjoyment  of  certain  indispensable 
comforts  and  necessaries,  out  of  his  property.  But  property  belonging 
to  the  firm  cannot  be  said  to  belong  to  either  partner  as  his  separate 
property.  He  has  no  exclusive  interest  in  it.  It  belongs  as  much  to 
his  partner  as  it  does  to  him,  and  cannot  in  whole  or  in  part  be  appro- 
priated (so  long  as  it  remains  undivided)  to  the  benefit  of  his  family. 
It  ma}'  be  wholly  contingent  and  uncertain  whether  an}-  of  it  will  be- 
long to  him  on  the  winding  up  of  the  business  and  the  settlement  of  his 
account  with  the  firm. 

The  exemption,  in  our  opinion,  is  several,  and  not  joint.  It  applies 
to  the  debtor  in  the  singular  number,  and  is  personal  and  individual 
only.  If  he  desires  to  form  a  partnership  and  combine  his  means  with 
those  of  one  or  more  than  one  other  person,  he  must  take  the  precau- 
tion to  retain  exclusive  ownership  of  his  tools  and  implements,  allow- 
ing the  use  of  them  to  his  associates,  or  he  will  lose  entirely  the  benefit 
of  the  statutory  exemptions  as  to  that  kind  of  property. 

The  view  which  we  have  taken  of  the  case  has  rendered  it  unnecessary 
to  consider  certain  other  questions  which  were  discussed  in  the  argument. 

The  result  is,  that  the  plaintiffs  are  not  entitled  to  maintain  their 
action ;  the  verdict  must  be  set  aside,  and  judgment  entered  for  the 
defendant. 


§  3.  Firm  Title  Devested  by  Act  of  the  Firm. 
BOLTON   v.   PULLER  et  al. 

1  Bos.  &  P.  5:59.     1700. 

Forbes,  Gregory,  Caldwell,  and  Smith  were  partners  in  banking  at 
Liverpool,  and  Forbes  and  Gregory  carried  on  a  separate  banking-house 
in  London.     J.  Bolton,  having  accepted  bills  payable  at  the  bank  of 


183  THE   NATURE    OF    A   PARTNERSHIP.  [CIIAF.  III. 

Forbes  and  Gregory,  employed  Forbes,  Gregory,  Caldwell,  &  Smith 
to  get  them  paid  there,  and  agreed  to  deposit  with  them  good  bills  in- 
dorsed by  him  for  the  purpose  of  enabling  them  to  do  so.  Accordingly, 
Forbes,  Gregory,  Caldwell,  &  Smith  debited  Bolton  in  account  for  his 
acceptances,  and  credited  him  for  all  bills  which  he  deposited.  Some 
of  the  bills  so  deposited  by  Bolton  were  remitted  by  the  Liverpool  house 
to  the  London  house  upon  the  general  account  between  the  two  banks  ; 
and  before  the  acceptances  of  Bolton  became  due,  both  houses  failed, 
and  Bolton  was  obliged  to  pay  his  acceptances.  He  brought  trover 
against  the  assignees  of  Forbes  and  Gregoiy  for  the  bills  so  deposited 
and  remitted.1 

The  case  was  first  argued  by  Williams,  Serjt.,  for  the  plaintiff,  and 
Ileywood,  Serjt.,  for  the  defendant;  and  a  second  time  by  Adair, 
Serjt.,  for  the  former,  and  by  Le  Blanc,  Serjt.,  for  the  latter. 

Eyre,  Ch.  J.  The  question  is,  whether  the  plaintiff  can  maintain 
this  action  upon  this  case?  For  him  it  is  urged  that  the  house  in 
London  is  a  house  of  trade,  carried  on  by  two  of  the  partners  in  the 
banking-house  in  Liverpool ;  though  it  is  admitted  that  the  trade  car- 
ried on  in  London  is  the  separate  estate  of  those  two  partners.  It  is 
insisted,  that  the  bills  in  their  hands  remained  in  the  same  state,  subject 
to  the  same  rules  of  law  and  equity,  as  would  have  applied  to  them  in 
the  possession  of  the  house  at  Liverpool ;  and  that,  having  been  ap- 
propriated (as  it  is  called)  or  delivered  to  the  house  at  Liverpool  for  a 
special  purpose,  and  not  having  been  ultimately  applied  to  that  pur- 
pose, and  remaining  in  specie  in  their  possession,  Bolton  would  have 
been  entitled  to  demand  to  have  them  delivered  up  to  him  by  the  bank- 
ing-house at  Liverpool,  or  by  the  assignees  of  that  house,  supposing 
them  to  have  come  to  the  hands  of  those  assignees.  I  take  it  to  be 
now  settled,  that  bills  in  the  hands  of  a  banker,  like  goods  in  the  hands 
of  a  factor,  in  the  event  of  a  bankruptcy  are  to  be  delivered  up  subject 
only  to  the  lien  which  the  banker  may  have  upon  them  for  the  balance 
of  his  account.  On  the  other  hand,  it  is  clear,  that,  if  indorsed  bills 
are  deposited  with  a  banker,  and  they  are  by  him  negotiated  to  a  third 
person,  though  the  purpose  for  which  they  were  deposited  should  be 
ever  so  cruelly  disappointed  by  his  becoming  bankrupt,  the  original 
owner  can  have  no  claim  to  recover  them  in  trover  against  such  third 
person.  The  present  seems  to  be  a  middle  case,  and,  I  believe,  is 
a  new  one.  We  must  endeavor  to  ascertain  to  which  class  it 
belongs. 

There  can  be  no  doubt  that,  as  between  themselves,  a  partnership 
may  have  transactions  with  an  individual  partner,  or  with  two  or  more 
of  the  partners  having  their  separate  estate,  engaged  in  some  joint  con- 
cern, in  which  the  general  partnership  is  not  interested  ;  and  that  they 
may,  by  their  acts,  convert  the  joint  property  of  the  general  partner- 
ship into  the  separate  property  of  an  individual  partner,  or  into  the 

1  The  statement  of  facts  has  heen  condensed. 


S  3.]  FIRM    TITLE    DEVESTED  'BY    ACT    OF   THE    FIRM.  189 

joint  property  of  two  or  more  partners,  or  e  convt  rso.     And  their  trans- 
actions in  this  respect  will,  generally  speaking,  bind  third  persons,  and 
third  persons  may  take  advantage  of  them  in  the  same  manner  as  if 
the  partnership  were  transacting  business  with  strangers  ;  for  instance, 
suppose  the  general  partnership  to  have  sold  a  bale  of  goods  to  the 
particular  partnership,  a  creditor  of  the  particular  partnership  might 
take  those  goods  in  execution  for  the  separate  debt  of  that  particular 
partnership.     In  some  respects,  therefore,  an  individual  partner,  or  a 
particular  partnership  consisting  of  two  or  more  of  those  persons,  who 
are  partners  in  some  larger  partnership,  may  be  considered  as  third 
persons  in  transactions  in  which  the  general  partnership  may  happen 
to  be  engaged  with  their  correspondent,     On  the  other  hand,  it  will  be 
difficult,  if  not  impossible,  for   individual  partners,   or  for  particular 
partnerships  composed  of  individual  partners,  to  shake  off  privity  in  all 
transactions  of  the  general  partnership,  or  to  avoid  all  the  consequences 
of  privity.     Each  partner  is  a  party,  as  well  as  privy,  to  the  transactions 
of  the  general  partnership,  though    the   general  partnership  is  not  a 
party  to  the  separate  transactions  of  the  individual  partners.     Forbes 
and  "Gregory  were  therefore  parties  to  the  agreement  which  Caldwell 
and  Smith  entered  into  with  Bolton,  and  were  as  much  bound  by  it  as 
Caldwell  and  Smith  were.     And  I  hold  that  if  Bolton  had   sued  the 
house  at  Liverpool  for  a  breach  of  that  agreement,  and  had  recovered, 
he  might  have  taken  any  part  of  the  separate  estate  of  the  house  in 
London  in  execution  in  satisfaction  of  his  judgment.     But  this  will  not 
touch  the  question,  what  shall  be  deemed  the  joint  property,  and  what 
the  separate  property  of  persons  so  circumstanced.     Joint  or  several, 
Bolton's  claim  upon  it  in  the  case  supposed  would  be  equally  avail- 
able to  him. 

"Bankruptcy,  when  it  intervenes,  may  very  much  change  the  situa- 
tion of  these  parties.  Mr.  Justice  Heath  suggested  this  consider- 
ation at  the  close  of  the  first  argument.  It  is  a  very  important 
consideration. 

If  all  become  bankrupts,  all  the  joint  and  all  the  separate  property 
will  rest  in  the  assignees,  whether  the  commissions  are  joint  or  several. 
If  a  separate  commission  issue  against  one  partner,  his  assignees  will 
take  all  his  separate  property,  and  all  his  interest  in  the  joint  property. 
If  a  joint  commission  issues  against  all,  the  assignees  will  take  all  the 
joint  property,  and  all  the  separate  property  of  each  individual  partner. 
In  the  distribution  to  creditors,  a  rule  of  convenience  has  been  adopted. 
To  understand  it,  we  should  see  what  the  rights  of  creditors  were  as 
to  execution  for  their  debts  before  bankruptcy.     A  separate  creditor 
might  take   at  his   election   the  separate  estate  of  his  debtor,  or  his 
debtor's  share  of  the  joint  estate,  or  both,  if  necessary.     A  joint  credi- 
tor might  take  the  whole  joint  estate,  or  the  whole  separate  estate  of 
any  one  partner.    But  the  rule  of  convenience  which  has  been  adopted, 
restrains  the  separate  creditor  from  resorting  in  the  first  instance  to  his 
debtor's  share  of  the  joint  property  ;  and  also  restrains  the  joint  credi- 


190  THE    NATURE    OF   A    PARTNERSHIP.  [CHAP.  IIL 

tor  from  resorting  in  the  first  instance  to  the  separate  property  of  his 
debtor.      Bankruptcy  has  been  called  a  statute  execution  ;  but  if  it  has 
any  analogy  to  an  execution,  it  is  certainly  very  much  modified,  and, 
as  I  take  it,  b}'  the  authority  of  the  chancellor,  who  is  to  take  order 
for  the  distribution  of  the  effects  of  a  bankrupt.     Under  the  rule  the 
separate  creditors  have  a  right  to  be  satisfied  for  their  debts  out  of  the 
separate  property  in  preference  to  the  joint  creditors.     But  what  shall 
be  deemed  separate  property,  or  what  effect  the  claims  of  third  persons 
upon  that  which  (as  between  one  partner  and  the  partnership)  would 
be  separate  property,  are  questions  which  neither  bankruptcy  nor  the 
rule  of  distribution  seem   to  touch.     The  assignees  stand  but  in  the 
place  of  the  bankrupts,  and  take  the  effects,  subject  to  every  legal  and 
equitable   claim  upon  those  effects.     And   therefore   I  conclude  that, 
though  bankruptcy  very  much   alters  the  situation  in   which  I  have 
placed  Mr.  Bolton,  in  the  course  of  the  argument,  as  a  creditor  having 
obtained  a  judgment  against  the  banking-house  at  Liverpool  on  the 
ground   of  this  agreement,  the  question  now  made  between  him  and 
the  assignees  of  Forbes  and  Gregory  remains  undecided,  and  must  (as 
it   appears   to   me)   depend  on  inquiry  into  the  effect  of  the   privity 
and  participation  of  Forbes  and  Gregory  in  the  transaction  between 
Bolton   and    the   banking-house    at   Liverpool,    in   which   they   were 
partners. 

The  true  nature  of  that  transaction  has  been  warmly  disputed  in  the 
course  of  the  argument;  but  it  comes  out  to  be  simply  this  :  Bolton 
paid  into  his  banker's  hands  these  bills  on  his  general  account  for  a 
particular  purpose.  This  has  been  called  an  appropriation  ;  and  legal 
consequences  are  deduced  from  thence,  as  if  appropriation  was  a  tech- 
nical term,  or  at  least  was  used  in  some  definite  or  precise  sense  ; 
whereas  no  term  in  popular  use  can  be  more  general,  or  more  uncertain 
in  its  import.  In  truth,  when  I  say,  these  bills  were  paid  in  on  a  gen- 
eral account  for  a  particular  purpose,  I  mean  only  to  say,  that  the 
object  which  the  parties  had  in  their  view  was,  that  the  bankers  might 
be  enabled  to  provide  for  the  payment  of  Mr.  Bolton's  acceptances  in 
London.  So  far  from  being  appropriated  to  any  particular  purpose  in 
the  strict  sense  of  the  word,  the  bills  in  specie  were  not  intended  to 
be  applied  to  any  other  purpose  than  to  be  converted  into  cash,  in  order 
to  increase  Mr.  Bolton's  credit  with  his  bankers ;  and  in  the  nature  of 
things  they  could  not  be  applied  in  specie  to  the  particular  purpose  of 
paying  Mr.  Bolton's  acceptances  in  London.  These  bills,  at  least  the 
bills  in  question,  were  remitted  to  the  house  in  London  on  the  general 
account  of  the  banking-houses.  We  cannot  think  that  this  was  a  mis- 
application ;  or  that  the  confidence  of  Mr.  Bolton  was  abused.  It  may 
be  asked,  assuming  that  Mr.  Bolton  considered  both  houses  to  be  in 
full  credit,  was  it  not  the  very  thing  he  meant?  was  not  this  the  prob- 
able mode  by  which  the  banking-house  would  be  enabled  to  provide  for 
the  payment  of  Mr.  Bolton's  acceptances  at  the  house  of  Forbes  and 
Gregory  ?     Then  what  effect  can  the  privity  and  participation  of  Forbes 


§  3.]  FIRM   TITLE    DEVESTED   BY   ACT    OF   THE    FIRM.  191 

and  Gregory  in  the  agreement  between  Bolton  and  the  banking-house 
have  on  this  transaction  ?  which,  as  between  the  two  houses,  un- 
doubtedly changed  the  property  in  these  bills,  —  a  circumstance  which 
distinguishes  this  case  from  all  the  cases  which  have  been  determined 
on  this  subject,  and  puts  it  out  of  the  reach  of  the  principle  upon  which 
the  case  of  Zink  v.  Walker,  and  the  late  case  of  Took  v.  Hollingworth, 
in  the  Court  of  Error  were  determined.  The  privity  of  Forbes  and 
Gregory  to  the  transaction  at  Liverpool  rather  created  a  demand  upon 
them  to  do  what  they  did,  than  to  take  any  other  course:  for  there  is 
no  pretence  to  say  that  it  was  intended  that  a  separate  account  of 
these  bills  should  be  kept  b}-  anybody.  The  business  went  on  in  the 
general  channel  upon  the  foot  of  the  agreement,  without  the  least  im- 
putation upon  it,  up  to  the  moment  of  the  bankruptcy,  when  the 
adverse  rights  of  the  creditors  of  the  two  houses  attached. 

If  up  to  the  moment  of  the  bankruptcy  nothing  affected  the  right  of 
Forbes  and  Gregoiw  to  hold  these  bills  on  "their  separate  account,  that 
right  must  vest  in  the  assignees  of  Forbes  and  Gregory  with  nothing  to 
affect  it.  The  assignees  of  Forbes  and  Gregory  are  bound  to  admit 
that  Forbes  and  Gregoiy  knew  that  Mr.  Bolton's  object,  and  that  the 
object  of  the  partnership  at  Liverpool  was,  that  by  means  of  these  bills 
the  acceptances  were  to  be  provided  for.  But  how  were  these  bills  to 
operate  as  means  ?  They  were  to  be  dealt  with  as  the  banking-house 
thought  fit  to  deal  with  them  ;  to  be  negotiated,  if  they  thought  fit ;  to 
be  discounted  at  Liverpool,  if  the}'  pleased,  or  remitted  to  whom  they 
pleased ;  and  were  necessarily  to  be  converted  into  mone}-,  in  order  to 
be  means  effectual  to  the  purpose  even  of  the  parties  who  deposited 
them. 

If  then  Forbes  and  Gregor}-  were  parties  capable  of  acquiring  a 
property  in  these  bills,  as  capable  as  any  third  party,  and  did  acquire 
it  without  reproach,  and  in  truth  in  pursuance  of  that  agreement  upon 
which  they  were  delivered  to  the  banking-house,  why  are  not  Forbes 
and  Gregory  to  be  considered  as  third  persons  with  whom  these  bills 
have  been  negotiated  ?  If  they  were  to  be  so  considered,  this  deter- 
mines the  class  to  which  I  said,  in  a  former  part  of  the  argument,  we 
were  to  endeavor  to  reduce  this  middle  case  between  the  case  of 
original  parties  to  the  transaction  and  the  case  of  third  persons  hold- 
ing such  bills  as  these  in  the  ordinary  course  of  the  negotiation  of 
bills  of  exchange. 

A  circumstance  belonging  to  the  lesser  bill  of  £398  18s.  3d.  was 
taken  notice  of  in  the  argument ;  namely,  that  it  came  to  the  hands  of 
Forbes  and  Gregory  on  the  day  when  they  became  bankrupt.  We  are 
of  opinion  that  the  lull  having  been  remitted,  as  far  as  concerned  the 
house  remitting,  before  the  bankruptcy,  and  to  a  creditor,  cannot  be 
recalled,  and  must  follow  the  fortune  of  the  other  bill. 

It  is  a  great  misfortune  to  Mr.  Bolton  to  have  been  so  deeply  con- 
cerned with  these  failing  houses.  In  such  cases  it  too  often  happens 
that  heavy  losses  fall  somewhere.     The  only  consolation  is  that  it  is 


192  THE    NATURE    OF   A   PARTNERSHIP.  [CHAP.  III. 

the  law  of  the  land,  and  not  the  caprice  or  even  error  of  an}-  man, 
which  can  ultimately  decide  where  they  shall  fall. 

Our  opinion  upon  this  case  is,  that  the  judgment  must  be  for  the 
defendants. 

Judgment  for  the  defendants.1 


Ex  parte   RUFFIN. 
6  Vesey,  119.     1801. 

In  June,  1797,  Thomas  Cooper,  of  Epsom,  brewer,  took  James 
Cooper  into  partnership.  That  partnership  was  dissolved  by  articles 
dated  the  3d  of  November,  1798,  under  which  the  buildings,  premises, 
stock  in  trade,  debts,  and  effects  were  assigned  to  James  Cooper,  by 
Thomas  Cooper,  who  retired  from  the  trade.  Upon  the  2d  of  April, 
1800,  a  commission  of  bankruptcy  issued  against  James  Cooper,  under 
which  the  joint  creditors  attempted  to  prove  their  debts,  but  the  com- 
missioners refused  to  permit  them  ;  upon  which  a  petition  was  pre- 
sented to  Lord  Rosslyn,  who  made  an  order  that  the  joint  creditors 
should  be  at  liberty  to  prove,  with  the  usual  directions  for  keeping  dis- 
tinct accounts,  and  an  application  of  the  joint  estate  to  the  joint  debts, 
and  of  the  separate  estate  to  the  separate  debts.  At  a  meeting  for  the 
purpose  of  declaring  a  dividend,  the  commissioners  postponed  the  divi- 
dend, in  order  to  give  an  opportunity  of  applying  to  the  Lord  Chancel- 
lor ;  in  consequence  of  which,  this  petition  was  presented,  praying  that 
the  partnership  effects  remaining  in  specie,  and  possessed  by  the  as- 
signees, may  be  sold,  and  that  the  outstanding  debts  may  be  accounted 
joint  estate. 

By  the  articles  of  dissolution,  the  parties  covenanted  to  abide  by  a 
valuation  to  be  made  of  the  partnership  property ;  and  James  Cooper 
covenanted  to  pay  the  partnership  debts  then  due,  and  to  indemnify 
Thomas  Cooper  against  them  ;  and  Thomas  Cooper  covenanted  not  to 
carry  on  the  trade  of  a  brewer  for  twent}'  }Tears  within  twenty  miles  of 
•  Epsom.  A  bond  for  £3,000,  the  calculated  value  of  the  partnership 
property  assigned,  was  given  to  Thomas  Cooper  by  James  Cooper  and 

1  In  Bonwit  v.  Heyman,  43  Neb.  537  ;  61  N.  W.  716  (1895),  the  firm  of  E.  Heyman 
&  Co.,  composed  of  E.  Heyman,  A.  Deiches,  &  P.  J.  Bonwit,  was  indebted  to  the  firm 
of  Heyman  &  Deiches,  composed  of  E.  Heyman  &  A.  Deiches,  in  the  sum  of  $8,200, 
for  merchandise  sold  by  the  latter  to  the  former  firm.  The  firm  of  Heyman  &  Deiches 
was  indebted  to  Amy  Hoffman  for  money  loaned  in  the  sum  of  more  than  $21,000. 
The  latter  firm  assigned  its  claim  against  the  former  to  Amy  Hoffman,  and  E.  Hey- 
man executed  and  delivered  to  her  a  chattel  mortgage  in  the  'name  of  E.  Heyman 
&  Co.,  on  the  stock  of  that  firm.  Bonwit  refused  to  allow  the  mortgagee  to  take 
possession  of  the  stock,  and  brought  an  action  to  have  a  receiver  of  the  firm  of  E.  Hey- 
man &  Co.  appointed,  who  should  apply  the  assets  of  that  firm  among  its  creditors. 
In  this  action  the  mortgage  of  Amy  Hoffman  was  declared  to  be  void  as  against  the 
general  creditors  of  E.  Heyman  &  Co. 


§  3.]  FIRM    TITLE    DEVESTED    BY    ACT    OF   THE   FIRM.  193 

his  father,  as  surety.  In  pursuance  of  the  covenant,  the  partnership 
property,  consisting  of  leases,  the  premises  where  the  trade  had  been 
carried  on,  stock,  implements,  outstanding  debts,  and  other  effects, 
were  valued  by  arbitrators  at  £2,030,  after  charging  all  the  partnership 
debts  then  due.  James  Cooper,  by  his  affidavit,  stated  that  all  the 
joint  creditors  knew  of  the  dissolution  and  the  assignment  of  the 
property  ;  that  advertisements  were  published  ;  and  the  deponent,  after 
the  dissolution,  received  many  debts  due  to  the  partnership,  but  paid 
more  on  account  of  the  partnership.  His  father,  by  affidavit,  stated 
that  he  paid  the  interest  of  the  bond  regularly,  and  intended  to  pay  the 
principal  when  due. 

Mr.  Romilly  and  Mr.  Cullen,  for  the  joint  creditors,  and  Mr.  Bell, 
for  Thomas  Cooper. 

Mr.  Mansfield  and  Mr.  Cooke,  for  the  assignees. 

Eldon,  L.  C.  This  case  is  admitted,  unless  Ex  parte  Burnaby, 
1  Cooke's  Bank.  Law  (4th  ed.),  253,  applies  to  it,  to  be  new  in  its  cir- 
cumstances. Therefore,  if  I  was  of  opinion  that  the  petition  could  be 
supported,  I  should  be  very  unwilling  to  express  that  in  bankruptcy, 
where  my  opinion  would  not  be  subject  to  review.  If  the  case  I  have 
mentioned  has  decided  the  point,  there  is  the  authority  of  Lord  Hard- 
wicke  upon  it,  which  would  weigh  down  the  most  considerable  doubt 
that  I  could  be  disposed  to  entertain.  I  feel  great  difficulty  in  comply- 
ing with  the  praj'er  of  the  petition  ;  and,  when  I  read  it,  was  struck 
with  it  as  a  new  case,  and  as  one  upon  which  I  do  not  clearly  see  my 
way  to  the  relief  prayed.  It  is  the  case  of  two  partners  who  owed  several 
joint  debts,  and  had  joint  effects.  Under  these  circumstances,  their 
creditors,  who  had  a  demand  upon  them  in  respect  of  those  debts,  had 
clearly  no  lien  whatsoever  upon  the  partnership  effects.  They  had  the 
power  of  suing,  and  by  process  creating  a  demand  that  would  directly 
attach  upon  the  partnership  effects.  But  they  had  no  lien  upon  or 
interest  in  them  in  point  of  law  or  equity.  If  any  creditor  had  brought 
an  action,  the  action  would  be  joint :  his  execution  might  be  either 
joint  or  several.  He  might  have  taken  in  execution  both  joint  and  sepa- 
rate effects.  It  is  also  true  that  the  separate  creditors  of  each,  by 
bringing  actions,  might  acquire  a  certain  interest  even  in  the  partner- 
ship effects,  taking  them  in  execution  in  the  way  in  which  separate 
creditors  can  affect  such  property.     But  there  was  no  lien  in  either. 

The  partnership  might  dissolve  in  various  ways.  First,  by  death  ; 
secondly,  by  the  act  of  the  parties,  that  act  extending  to  nothing  more 
than  mere  dissolution,  without  an}'  special  agreement  as  to  the  disposi- 
tion of  the  property,  the  satisfaction  of  the  debts,  much  less  any  agree- 
ment for  an  assignment  from  either  of  the  partners  to  the  others.  The 
partnership  might  also  be  dissolved  by  the  bankruptcy  of  one  or  of  both, 
and  by  eilluxion  of  time.  If  it  dissolved  by  death,  referring  to  the  law 
of  merchants  and  the  well-known  doctrine  of  this  court,  the  death  being 
the  act  of  God,  the  legal  title  in  some  respects,  in  all  the  equitable 
title,  would  remain  notwithstanding  the  survivorship ;  and  the  execu- 

13 


194  THE   NATURE    OF   A    PARTNERSHIP.  [CHAP.  IIL 

tor  would  have  a  right  to  insist  that  the  property  should  be  applied  to 
the  partnership  debts.     I  do  not  know  that  the  partnership  creditors 
would  have  that  right,  supposing  both  remained  solvent.     So,  upon  the 
bankruptcy  of  one  of  them,  there  would  be  an  equity  to  say  the  as- 
signees stand  in  the  place  of  the  bankrupt,  and  can  take  no  more  than 
be  could,  and,  consequently,  nothing,  until  the  partnership  debts  are 
paid.     So,  upon  a  mere  dissolution  without  a  special  agreement,  or  a 
dissolution  by  effluxion  of  time,  to  wind  up  the  accounts,  the  debts 
must  be  paid,  and  the  surplus  be  distributed  in  proportion  to  the  differ- 
ent interests.     In  all  these  ways,  the  equity  is  not  that  of  the  joint 
creditors,  but  that  of  the  partners  with  regard  to  each  other,  that  oper- 
ates to  the  payment  of  the  partnership  debts.     The  joint  creditors  must 
of  necessity  be  paid,  in  order  to  the  administration  of  justice  to  the 
partners  themselves.      When  the  bankruptcy  of  both   takes  place,  it 
puts  an  end  to  the  partnership  certainly  ;  but  still  it  is  very  possible, 
and  it  often  happens  in  fact,  that  the  partners  may  have  different  inter- 
ests in  the  surplus,  and  out  of  that  a  necessity  arises  that  the  partner- 
ship debts  must  be  paid  ;  otherwise  the  surplus  cannot  be  distributed 
according  to  equity,  and  no  distinction  has  been  made  with  reference 
to  their  interests,  whether  in  different  proportions  or  equally.     Many 
cases  have  occurred  upon  the  distribution   between  the  separate  and 
joint  estates,  and  the  principle  in  all  of  them,  from  the  great  case  of 
Mr.  Fordyce,  has  been  that,  if  the  court  should  say  that  what  has  ever 
been  joint  or  separate  property  shall  always  remain  so,  the  consequence 
would  be,  that  no  partnership  could  ever  arrange  their  affairs.     There- 
fore, a  bona  fide  transmutation  of  the  property  is  understood  to  be  the 
act  of  men  acting  fairly,  winding  up  the  concern,  and  binds  the  credi- 
tors ;  and  therefore  the  court  always  let  the  arrangements  be  as  they 
stand,  not  at  the  time  of  the  commission,  but  of  the  act  of  bankruptcy. 
Thomas  Cooper  is  admitted  to  be  solvent.     He  certainly  has  no  such 
equity,  as  if  the  partnership  had  been  dissolved  by  bankruptcy,  death, 
effluxion  of  time,  or  any  other  circumstance,  not  his  own  act.     But  he 
dissolves  the  partnership  a  year  and  a  half  ago,  and,  instead  of  calling 
upon  these  effects  according  to  his  equity  at  the  dissolution,  to  pay  the 
partnership  debts,  he  assigns  his  interest  to  the  other,  to  deal  as  he 
thinks  fit  with  the  property,  to  act  with  the  world  respecting  it,  desiring 
only  a  bond  to  pay  a  given  value  in  three  or  four  years.     Therefore  he 
or  his  executors  could  not  sue.     If  it  was  necessary  for  the  creditors  to 
operate  their  relief  through  his  equity,  he  has  no  equity.     It  is  then 
said,  and  the  circumstance  had  struck  me,  that  all  the  property  is  not 
assignable  at  law,  —  for  instance,  the  debts,  —but,  as  between  the  two 
Coopers  they  were  the  property  of  the  bankrupt ;  for  debts  are  within 
the  statute  of  King  James,   and,   if   left  in  the   order  and   disposal 
of  the  bankrupt,  he  is  proprietor  of  the  debt.     Therefore,   Thomas 
Cooper  could  never  set  up  the  insufficiency  of  the  legal  operation  of 
the  assignment  against  his  own  deed.     The  assignment  was  not  made 
subject  to  the  payment  of  the  debts,  but  in  consideration  of  a  covenant, 


§  3.]  FIRM    TITLE   DEVESTED    BY   ACT    OF   THE    FIRM.  195 

leaving  no  duty  upon  the  propert}-,  but  attaching  a  personal  obligation 
upon  the  assignee  to  pay  the  debts.  The  creditors,  therefore,  cannot 
rest  upon  the  equity  of  the  partner  going  out.  I  was  struck  with  the 
argument  of  inconvenience  ;  the  inconvenience  on  all  sides  is  great. 
To  sa}-  this  seems  to  me  a  monstrous  proposition  ;  that  which,  at  an}' 
time  during  the  partnership,  has  been  part  of  the  partnership  effects, 
shall  in  all  future  time  remain  part  of  the  partnership  effects,  notwith- 
standing a  bona  fide  act.  Suppose,  an  improbable  case,  that  the  part- 
ners in  Child's  house  chose  to  shift  their  shop  from  Temple  Bar  to  the 
west  end  of  the  town  ;  and  that  house,  now  the  property  of  the  part- 
nership, was  bona  fide  bought  by  one  of  the  partners,  and  the  money 
was  invested  in  the  purchase  of  the  new  house  in  which  thej-  were 
going  to  reside  ;  suppose,  a  still  more  improbable  case,  that  a  year  and 
a  half  or  ten  years  afterwards  they  became  bankrupt,  —  would  that  house 
be  part  of  the  partnership  effects?  It  wrould  be  so,  if  it  remained 
without  the  legal  interest  being  passed,  or  without  any  equitable  claim, 
taking  it  out  of  the  reach  of  a  legal  execution  ;  but  where  the  effect  is 
a  bona  fide  transaction  of  this  sort,  if  it  were  held  at  any  time  after- 
wards to  be  partnership  property,  not  for  the  purpose  of  satisfying 
demands  of  the  partners,  or  of  any  creditor,  who  cannot  otherwise  be 
satisfied,  but  to  enable  them  to  undo  all  the  intermediate  equities,  com- 
mercial transactions  could  not  go  on  at  all.  It  would  be  much  less  in- 
convenience to  examine  the  bona  fides  of  each  transaction  than  to  say 
such  transactions  shall  never  take  place. 

The  case  of  "West  v.  Skip,  1  Ves.  237,  falls  within  some  of  the  obser- 
vations I  have  made.  Heath  v.  Percival,  1  P.  Wms.  682,  does  not 
apply  at  all.  The  bond  in  that  case  was  not  given  up  ;  and,  therefore, 
the  creditor  keeping  the  best  security,  and  refusing  to  part  with  it,  no 
inference  can  be  made  against  the  conclusion  arising  from  that.  Hankey 
v.  Garratt,  1  Ves.  236,  is  also  very  different.  There  the  partnership 
was  dissolved  by  bankruptc}-  or  by  death,  and  there  was  no  actual 
transfer  of  the  property  to  take  it  out  of  the  reach  of  legal  execution. 
I  am  unwilling  to  make  any  observation  upon  Burnaby's  Case.  I  do 
not  know  how  to  understand  it.  Whether  there  was  anything  special 
in  the  assignment,  I  cannot  find  out  from  the  report.  I  shall  endeavor 
to  find  the  papers.  It  looks  very  like  this  case  ;  if  it  is  in  specie  this  case, 
as  an  authority,  I  should  think  myself  bound  to  submit  to  it.  But  if  it 
is  not  in  specie  this  case,  there  is  so  much  doubt  whether  this  relief  can 
be  given,  that  I  am  satisfied  it  ought  to  be  given,  if  at  all,  in  a  jurisdic- 
tion where  my  opinion  would  be  subject  to  review.  My  present  incli- 
nation is  that  the  creditors  have  not  this  equity.  I  have  considerable 
doubt,  also,  whether,  if  they  have  it,  Thomas  Cooper  would  be  bene- 
fited by  it;  and  a  further  subject  of  grave  and  serious  doubt  is, 
whether,  if  the  joint  creditors  disturb  the  arrangement,  the  separate 
creditors  would  not  have  a  right  to  set  the  arrangement  right  at  his 
expense. 

I  now  think  there  is  a  circumstance  which  distinguishes  Burnaby's 


196  THE   NATURE   OF   A   PARTNERSHIP.  [CHAP.  IIL 

Case.  The  assignment  was  not  b}T  one  to  the  other  two,  but  by  one  to 
one  of  the  other  two,  which  may  be  very  different.  I  think  that  cir- 
cumstance distinguishes  the  case  so  much  that  I  shall  consult  the  inter- 
est of  the  parties  better  by  saying  they  may  file  a  bill,  if  they  think 
proper,  than  by  further  delay. 

The  "petition  was  dismissed. 


In  re  KEMPTNER. 

L.  R.  8  Eq.  286.     1869. 

In  February,  1867,  "W.  Kemptner,  a  partner  in  the  firm  of  W.  Kempt- 
ner  &  Co.,  merchants,  of  Yokohama,  in  Japan,  being  about  to  go  to 
England,  desired  to  withdraw  from  the  funds  of  the  partnership  £4,000, 
which  was  standing  to  his  credit  in  the  partnership  books,  and  which, 
under  the  articles,  he  was  entitled  to  withdraw  at  any  time.  Accord- 
ingly, bills  of  exchange  for  £4,000,  drawn  by  banks  in  Japan  on  banks 
in  London,  and  payable  to  the  order  of  W.  Kemptner  &  Co.,  were  pur- 
chased with  partnership  moneys.  The  bills  were  in  three  sets.  The 
first  set  were  indorsed  by  the  firm  to  W.  Kemptner,  and  were  handed 
to  him  ;  the  second  set  were  sent  to  London  in  an  envelope,  addressed 
to  W.  Kemptner,  but  were  not  indorsed.  W.  Kemptner  died  at  New 
York,  in  May,  1867,  on  his  journey  to  England,  and  the  first  set  of  bills 
were  lost.  In  December,  1867,  the  surviving  partners  assigned  their 
estate  and  effects  to  trustees,  to  be  administered,  as  in  bankruptcy,  for 
the  benefit  of  their  creditors.  The  bills  being  claimed  on  the  one  hand 
by  the  executors  of  W.  Kemptner  as  his  separate  estate,  and  on  the 
other  hand  by  the  trustees  of  the  creditors'  deed  as  partnership  assets, 
by  arrangement  the  second  set  were  indorsed  by  Malcolm,  one  of  the 
partners,  who  was  in  England,  in  the  name  of  the  firm  ;  and  the  money 
was  received  by  two  stakeholders,  who  paid  it  into  court  under  the 
Trustee  Relief  Act. 

A  petition  was  now  presented  by  the  executors,  for  the  payment  of 
the  fund  in  court  to  them. 

Malcolm,  one  of  the  surviving  partners,  in  an  affidavit  in  support 
of  the  petition,  attributed  the  insolvency  of  the  firm  to  the  failure  of 
speculative  transactions  into  which  the  firm  had  entered  before  Febru- 
ary, 1867,  but  which  had  not  then  resulted  in  a  loss;  but,  from  his 
cross-examination,  and  other  evidence,  the  court  was  satisfied  that  the 
firm  was  in  fact  insolvent  when  the  bills  were  purchased. 

Mr.  Lindley,  for  the  petitioners. 

Mr.  Locock  Webb,  for  the  trustees,  was  not  called  upon. 

Mr.  Stirling,  for  the  stakeholders. 

Sir  R.  Malins,  V.  C.  It  is  admitted  by  Mr.  Lindley  that,  if  the 
transaction  was  a  fraud,  the  petitioners  can  have  no  right  to  receive 


S  3.]  FIRM    TITLE    DEVESTED    BY   ACT   OF   THE   FIRM.  197 

the  money.     Now,  was  it  a  fraud  or  was  it  not?     I  should  be  very 
slow  to  come  to  the  conclusion  that  Mr.  Kemptner,  who  died  more  than 
two  years  ago,  intended  to  commit  a  fraud ;  but'  I  must  look  at  the 
transactions,  and  the  position  of  the  parties  when   they  took   place. 
That  this  firm  was  insolvent  to  the  extent  of  very  many  thousands  of 
pounds,  at  the  very  time,  I  cannot  entertain  the  slightest  doubt.     [His 
Honor  referred  to  the  evidence,  and  continued :  ]  Even  if  it  rested 
upon  that,  I  should  be  bound,  I  think,  to  come  to  the  conclusion  that, 
this  being  a  fact  well  known  in  the  month  of  August  or  September, 
18GG,  and  these  bills  having  been  purchased  in  February,  18G7,  it  was 
intentionally  done,   whether   fraudulently  intended  or  not   makes   no 
difference.     But  over  and  above  all  that,  there  is  the  fact  that,  at  the 
end  of  the  very  same  year  in  which  the  transaction  took  place,  which 
could  only  be  justified  on  the  assumption  of  the  solvency  of  the  firm, 
the  firm  was  insolvent.     How  were  the}-  insolvent?     Was  the  failure 
caused  by  any  new  undertaking,  any  unforeseen  misfortune?     On  the 
contrary,  Mr.  Malcolm,  in  his  cross-examination,  admits  that  the  whole 
of  the  losses  arose  from  the  transactions  which  had  been  entered  into, 
and  the  liabilities,  therefore,  to  such  losses  had  been  incurred,  before 
the  transaction  now  in  question.     Upon  what  principle  can  a  partner 
who  has  concurred  with   his   co-partners   in  entering  into  mercantile 
adventures  which  may  end,  as  the}-  did  in  this  case,  in  ruinous  losses, 
be  entitled  to  treat  his  firm  as  solvent?     Until  the  result  of  the  under- 
takings is  known,  he  cannot  be  justified  in  taking  out  the  whole  of  his 
capital  upon  the  assumption  that  the  firm  is  solvent,  which,  if  he  did 
not  know,  I  must  take  him  as  bound  to  know,  to  have  been  insolvent. 
In  such  a  case,  if  any  accident  has  prevented  the  partner  from  possess- 
ing himself  of  the  assets  of  the  creditors,  the  court  is  bound  to  exercise 
all  its  power  to  prevent  a  transaction  so  grossl}-  improper  as  this  is. 
I  come  to  the  conclusion  that,  even  if  it  had  not  been  for  the  contin- 
gent liabilities,  the  firm  was,  to  the  knowledge  of  Mr.  Kemptner  and 
all  the  other  partners,  in  February,  1867,  when  this  transaction  took 
place,  insolvent.     If  the  money  had  been  taken  out,  the  creditors  could 
only  have  resorted  to  such  estate  as  they  could  find  ;  but  it  happens 
that  the  transaction  was  not  completed,  the  bills  were  not  paid,  and  I 
think  the  creditors  have  a  right  to  follow  the  bills  in  any  wa}r  the}-  can. 
It  happens  that  they  have  been  able  to  follow  them  in  consequence  of 
the  indorsement  not  having  taken  place  ;  and  I  must  treat  Mr.  Kempt- 
ner as  not  having  received  the  money.     The  court  has  possession  of  it, 
and,  having  possession  of  it,  it  is  my  dut}r  to  sa}-  it  is  not  to  go  to  the 
separate  creditors  ;  in  other  words,  it  is  not  to  go  to  Mr.  Kemptner,  but 
is  to  remain  as  part  of  the  assets  of  the  firm  of  which  he  was  a  member. 

As  to  the  costs,  I  think  it  is  a  very  proper  case  to  have  been  brought 
here ;  and  it  would  have  been  impossible  for  the  trustees  to  have  dealt 
witli  the  matter  without  coming  to  the  court.  It  has  reasonably  been 
conceded  that  the  costs  of  both  parties  should  be  paid  out  of  the  estate, 
and  what  remains  must  be  handed  over  to  the  trustees  of  the  deed. 


198  THE    NATURE    OF   A    PARTNERSHIP.  [CHAP.  III. 

WIGGINS  v.  BLACKSHEAR  et  al. 

86  Tex.  670:  26  S.  W.  939.     1894. 

Stayton,  C.  J.     This  is  an  action  by  W.  N.  Wiggins  against  the 
persons  composing  the   firm  of  Blackshear  &  Co.,   and  P.  C.  Baird, 
sheriff,  to  recover  the  value  of  property   seized  by  the  latter  under 
attachment  sued  out  by  Blackshear  &  Co.  in  an  action  brought  by  them 
against  J.  T.  Wiggins  &  Co.,  a  firm  composed  of  J.  T.  Wiggins  and 
S.  J.  Redman.     J.  T.  Wiggins  &  Co.  owned  a  stock  of  drugs,  paints, 
oils,  etc.,  of  the  value  of  $1,310,  besides  accounts  and  claims  amount- 
ing to  $800.     J.  T.  Wiggins  was  indebted  to  W.  N.  Wiggins  in  the 
sum  of  $445,  exclusive  of  some  interest,  and  S.  J.  Redman  was  indebted 
to  F.  W.  Henderson  in  the  sum  of  $594.     These  were  not  partnership 
debts,  but  the  money  for  which  they  were  contracted  seems  to  have 
been  used  in  the  partnership  business.     The  firm  was  indebted  in  the 
sum  of  $871.63,  of  which  $292.71  was  due  to  Blackshear  &  Co.     On 
December  24,  1889,  Wiggins   &   Co.  were  unable  to  raise  money  to 
meet   their   maturing   indebtedness,   and   in   that   sense  the  firm  was 
insolvent,  but  it  does  not  appear  what  property  the  members  of  the 
firm  owned  at  that  time.      On    that   day   they   conveyed   to   W.   N. 
Wiggins,  in  trust,  all  of  the  partnership  property,  with  power  to  sell 
it,  collect  the  debts,  and,  after  paying  the  expenses,  to  pay   (1)   the 
sums  due  from  J.   T.  Wiggins  to  W.  N.  Wiggins,  and  the  sum  due 
from  Redman  to  Henderson;    (2)  the  sums  due  to  partnership  creditors 
in  full  or  pro  rata,  without  preferences  between  them,  —  any  property 
remaining  after  these  things  were  done  to  be  returned  to  J.  T.  Wiggins 
&  Co.     Before  the  trust  deed  was  executed,  and  with  view  to  make 
them  partnership  creditors,  the  notes  due  from  J.  T.  Wiggins  to  W.  N. 
Wio-cins,  and  from  S.  J.  Redman  to  Henderson  were  indorsed  by  the 
firm  of  J.  T.  Wiggins  &  Co.,  with  knowledge  of  these  creditors.    W.  JN. 
Wiggins  took  possession  of  the  property  at  once,  in  accordance  with 
the  trust  deed,  whereupon  Blackshear  &  Co.  brought  suit  for  the  sums 
due  them,  and  seized  the  property  under  attachment,  and  it  was  after- 
wards sold  as  perishable  property.     That  seizure  was  the  basis  of  this 
action,  and  the  question  arises  whether  Wiggins  &  Co.  could  thus,  by 
way  of  mortgage,  appropriate  their  partnership  property  to  payment  of 
individual  debts  of  members  of  the  firm.     In  the  decision  of  this  ques- 
tion, the  fact  that  the  money  borrowed  by  the  persons  composing  the 
firm,  for  which  they  were  only  severally  liable,  may  have  been  used  in 
the  purchase  of  property  that  became  the  property  of  the  firm,  may  and 
will  be  considered  only  in  so  far  as  it  shows  that  the  mortgage  given 
to  secure   sums  so  borrowed  and  used  was  made  without  fraudulent 
intent.     That  the  individual  debts  so  secured  were  real,  and  the  money 
obtained  through  their  creation  used  in  the  the  purchase  of  property 
which  became  partnership  property,  takes  from  the  case  all  question  of 
fraud,  and  leaves  the  simple  question  whether  the  members  of  a  partner- 


S  3.]  FIRM    TITLE    DEVESTED    BY    ACT    OF    THE    FIRM.  199 


S 


ship,  circumstanced  as  was  the  firm  of  Wiggins  &  Co.,  may  lawfully 
mortgage  partnership  property  to  secure  debts  of  the  several  members 
of  the  firm,  for  which  the  partnership  is  not  liable. 

There  are  two  theories  on  which  it  is  sometimes  claimed  that  credi- 
tors of  a  partnership  have  a  right  to  have  its  assets  applied  to  the  pay- 
ment of  their  claims  in  preference  to  creditors  of  the  persons  composing 
the  firm.  The  first  of  these  is  that  the  partnership  property  is  pre- 
sumed to  have  been  obtained  through  credits  given  to  the  firm,  and 
that,  for  this  reason,  partnership  creditors  ought  to  be  preferred  in 
the  distribution  of  its  assets.  But,  if  courts  could  enter  into  such 
inquiries,  the  facts  of  this  case  would  defeat  the  right  to  preference 
on  such  a  ground,  for  the  partnership  property  in  question  was  doubt- 
less largely  acquired  with  money  borrowed  by  the  several  persons 
composing'  the  firm  from  W.  N.  Wiggins  and  F.  W.  Henderson,  to 
whom  preference  was  given  in  the  mortgage. 

The  other  theoiy  is  that  a  partnership  ought  to  be  treated  as  a  per- 
son, in  contradistinction  to  the  persons  composing  it,  and  therefore  its 
property  ought  to  be  first  subject  to  the  payment  of  partnership  debts, 
without  reference  to  the  will  of  the  partners  ;  but  a  partnership  cannot 
be  so  considered,  simply  because  such  is  not  its  nature.  For  partner- 
ship debts  the  members  of  the  firm  are  jointly  and  severally  liable,  and 
the  law  recognizes  no  personality  in  a  partnership  other  than  that  of 
the  persons  who  compose  it.  As  every  partner  is  liable  for  the  debts 
of  his  firm,  and  owns  its  property  in  common  with  other  partners,  it  is 
his  right  to  have  the  common  property  applied  to  the  payment  of 
partnership  debts,  and  all  the  other  partners,  without  his  consent,  can- 
not take  this  right  from  him. 

This  right  is  sometimes  said  to  give  every  partner  an  equitable  lien 
on  firm  assets,  as  well  to  secure  him  against  several  liability  for  firm 
debts  as  to  secure  to  him  his  proper  share  of  the  firm  assets  on  disso- 
lution ;  but  creditors  of  a  partnership  have  no  lien  or  other  claim  on 
partnership  assets  which  can  prevent  the  members  of  the  firm  from 
disposing  of  those  in  any  manner  or  to  whomsoever  they  may  deem 
proper,  provided  that  such  disposition  is  not  fraudulent.  That  a 
partnership  creditor  has  no  specific  lien,  either  legal  or  equitable, 
upon  partnership  assets,  any  more  than  any  individual  creditor  has 
upon  the  estate  of  his  debtor,  is  so  firmly  established  that  citation  of 
authority  in  support  of  the  proposition  is  useless  ;  but  they  may  acquire 
liens  by  contract,  or  through  the  process  of  a  court  by  which  the 
creditors  may  acquire  liens  on  specific  property.  The  rule  is  thus  well 
stated:  "  A  creditor  of  a  partnership  has,  as  a  general  rule,  no  direct 
lien  upon  the  partnership  property  until  lie  acquires  it  by  legal  process, 
that  is,  by  the  levy  of  an  attachment  or  of  an  execution.  His  indirect 
or  quasi  lien  is  derived  from  the  lien  or  equity  of  the  individual 
partners.  It  is  practically  a  subrogation  to  the  lien  of  the  individual 
partners.  If  the  partners  are  not  themselves  in  a  condition  to  enforce 
an  equitable  lien  upon  the  partnership  property,  the  creditors  of  the 


200  THE    NATURE    OF   A   PARTNERSHIP.  [CHAP.  III. 

partnership  cannot  enforce  a  lien  derived  from  them  or  from  one  of 
them.  The  equit}'  of  the  partnership  creditor  continues  so  long  as  the 
equity  of  the  individual  partner  continues,  and  no  longer."  Jones, 
Liens,  788. 

When,  however,  the  property  of  a  partnership  passes  into  the 
custodj*  of  a  court  for  administration,  as  in  cases  of  bankruptcy  or 
assignment  made  by  an  insolvent  firm,  then  the  court  will  administer 
it  as  was  the  right  of  the  several  partners  to  have  it  administered  while 
controlled  by  themselves.  In  such  cases,  the  court's  action  is  based 
as  fully  upon  the  rights  of  the  partners  as  between  themselves  as  upon 
the  rights  of  creditors  ;  and,  when  the  result  of  the  proceeding  is  to 
discharge  partners  from  further  liability,  then  the  first  theory  before 
referred  to  may  have  been  given  weight  in  establishing  an  administra- 
tive rule  in  such  cases.  In  accordance  with  the  general  rule  before 
stated,  it  has  been  steadily  held  that  one  partner  may  in  good  faith 
convey  his  interest  in  partnership  assets  to  another,  and  that  thereby 
all  equities  of  such  partner  and  of  all  partnership  creditors  to  subject 
such  assets  first  to  the  payment  of  their  claims  is  thereby  lost.  White 
v.  Parrish,  20  Tex.  689  ;  Rogers  v.  Nichols,  Id.  719  ;  Weaver  v. 
Ashcroft,  50  Tex.  442  ;  Swearingen  v.  Bassett,  65  Tex.  272  ;  Stansell 
v.  Fleming,  81  Tex.  298. 

It  has  been  held  that  one  member  of  an  insolvent  partnership,  all 
the  members  being  insolvent,  may  transfer  in  good  faith  with  the  con- 
currence of  the  other  partners,  his  interest  in  the  partnership  property 
to  an  individual  creditor,  and  that,  after  this,  a  simple  contract  creditor 
cannot  maintain  a  bill  to  subject  the  property  to  payment  of  a  debt  due 
to  him  by  the  firm.     Case  v.  Beauregard,  99  U.  S.  119. 

As  priority  of  right  of  partnership  creditors  over  creditors  of  the 
individual  members  of  the  firm  rests  on  the  rights  of  the  partners 
themselves,  can  there  be  any  doubt  if  an  insolvent  partnership  be  dis- 
solved b}-  mutual  agreement  of  its  members,  and  its  property  be 
divided  between  them  in  accordance  with  their  several  interests,  that 
partnership  creditors  would  lose  all  right  to  priority  of  payment  out  of 
property  so  distributed?  Members  of  a  partnership  having  thus  volun- 
tarily surrendered  their  rights  so  as  to  have  the  assets  appropriated, 
each  would  hold  property  received  in  distribution  in  his  separate  right, 
subject  alike,  however,  to  the  claims  of  all  creditors,  both  individual 
and  partnership.  Such  a  transaction  would  not  be  fraudulent  as  to 
either  class  of  creditors,  unless  some  further  fact  intervened,  for  the 
property  in  the  hands  of  each  partner  would  be  subject  as  before  to 
the  claims  of  partnership  creditors  as  well  as  others. 

In  the  case  before  us,  the  inference  is  that  the  members  of  the 
firm  of  Wiggins  &  Co.  owned  equal  shares  in  the  partnership  property  ; 
and  if  they  had  conveyed  or  mortgaged  the  entire  property  to  pay  or 
secure  the  debt  of  one  of  the  partners,  for  which  neither  the  firm  nor  the 
other  partner  was  liable,  then,  on  the  plainest  principles  of  right,  it  ought 
to  be  held  that  such  a  conveyance  or  mortgage  was  fraudulent  as  to 


8  3.]  FIRM   TITLE    DEVESTED    BY    ACT    OF   THE    FIRM.  201 

firm  creditors,  and  as  to  creditors  of  the  member  of  the  firm  not 
bound  for  the  debt,  for,  to  the  extent  of  his  interest  in  the  property, 
the  conveyance  would  be  voluntary.  Such,  however,  is  not  the  case 
we  have  before  us.  The  value  of  the  firm  assets,  exclusive  of  accounts 
and  claims,  which  amounted  to  $800,  was  shown  to  be  81,310,  and 
one-half  of  this  was  more  than  the  individual  indebtedness  of  either 
partner  secured  by  the  mortgage.  As  partnership  creditors  had  no 
lien  on  firm  property,  no  reason  is  perceived  why  each  member  might 
not  lawfully  permit  the  other  to  pay  his  individual  debt  out  of  his  own 
share  of  the  partnership  property  ;  and  the  same  reasons  which  would 
make  lawful  such  a  payment  would  give  validity  to  a  mortgage  given 
by  both  partners  to  secure  debts  of  members  of  the  firm.  Conveyances 
or  mortgages  given  under  such  circumstances  and  for  such  purposes 
are  not  voluntary  and  therefore  fraudulent  as  to  partnership  creditors. 

If  the  sums  each  partner  owed  individually  had  been  equal,  no  one 
would  doubt  their  perfect  right,  under  agreement  between  themselves, 
to  pay  or  secure  their  several  debts  with  partnership  assets,  for  this 
would  be  simply  using  by  each  one  what  belonged  to  him  for  a  lawful 
purpose.  That  their  several  debts  were  not  exactly  equal  is  a  matter 
of  no  importance  in  view  of  the  fact  that  the  share  of  each  in  firm 
assets  exceeded  in  value  the  individual  debt  of  each  secured  by  the 
mortgage.  The  rule  applicable  to  partnership  property  and  creditors 
when  in  the  hands  of  a  surviving  partner,  or  when  in  course  of  admin- 
istration in  bankruptcy,  or  under  assignment  for  benefit  of  creditors, 
was  applied  in  the  District  Court  and  in  the  Court  of  Civil  Appeals,  but 
it  is  believed  to  be  inapplicable  in  cases  like  this,  in  which,  although 
the  firm  be  insolvent,  partners  by  mutual  agreement  may,  within  the 
limit  heretofore  noticed,  prefer  individual  creditors,  if  this  be  done  in 
good  faith. 

This  cause  was  tried  without  a  jury,  and,  under  the  findings  of  the 
Court  of  Civil  Appeals,  judgment  will  be  here  rendered  in  favor  of  the 
plaintiff  against  all  defendants  for  the  sum  of  $1,310,  with  interest 
thereon  from  January  2,  1890,  at  rate  of  8  per  cent  per  annum,  to- 
gether with  all  costs  incurred  in  this  litigation. 

It  is  so  ordered. 


JACKSON   BANK  v.   DURFEY   et   al. 

72  Miss.  971  :  18  So.  456.     1895. 

Cooper,  C.  J.  The  appellant,  a  firm  creditor  of  the  appellees. 
Durfey  &  Ascher,  exhibited  its  bill  in  chancery,  seeking  to  annul  as 
fraudulent  two  certain  deeds  of  trust  whereby  the  firm  assets  were 
incumbered  to  secure  the  individual  debts  of  the  partners.  The  evi- 
dence, fairly  construed,  discloses  these  facts:  Durfey,  one  of  the  part- 
ners, was  indebted  to  the  defendant  Caldwell  in  the  sum  of  $.">.000,  and 


202  THE    NATURE    OF   A   PARTNERSHIP.  [CHAP.  IIL 

Ascher,  the  other  partner,  was  indebted  to  Hart  in  the  sum  of  $5,550. 
The  firm  and  the  individuals  composing  it  were  insolvent.     On  October 
3d,  Durfey  executed  a  deed   of  trust  on   all  property  owned  by  him 
individually,  and  upon  his  individual  half  interest  in  certain  property, 
specifically  described,  owned  by  the  firm,  to  secure  the  debt  clue  by  him 
to  Caldwell.     On  the  same  day  Ascher  executed  a  deed  of  trust  convey- 
ing his  individual  property,  and  his  individual  half  interest  in  certain  prop- 
erty, specifically  described,  owned  by  the  firm,  to  secure  the  debt  due  by 
him  to  Hart.     The  book  accounts,  and  certain  horses  which  had  been 
bought  for  resale,  were  not  included  in  the  conveyance  ;  but  the  stock 
kept  in  livery,  the  carriages,  feed,  and  other  appurtenances,  were  all 
incumbered.     Forfeiture  of  both  conveyances  was  fixed  for  the  same 
debt, — January    1st,    following, — at  which  time,  the   secured   debts 
remaining  unpaid,  the  trustees  were   authorized  and  directed  to  make 
sale  of  the  mortgaged  property,  and   out  of  its  proceeds  to  pay  the 
secured  debts.     The  members  of  the  firm  testified  that  they  expected, 
by  the  collection  of  the  outstanding  book  accounts,  by  the  sale  of  the 
stock  not  included  in  the  deeds,  and  from   the   profits  of  the  business, 
to  pay  the  firm  debts  ;  but  a  careful  consideration  of  the  evidence  satis- 
fies us  that  at  the  time  the  deeds  were  executed  the  firm  and  its  mem- 
bers were  hopelessly  insolvent,  and  that  no  expectation  could  reasonably 
have  been  entertained  that  the  firm  debts  could  be  paid  after  the  firm 
property  had   been  devoted  to  the   individual  debts  of  the  partners. 
What  followed  the  execution  of  the  deeds  was  at  best  the  struggle  of 
men  hoping  against  hope,  and  postponing  for  a  short  time  the  inevitable 
end.     The  issue  is  thus  sharply  presented  whether  it  is  lawful  for  the 
members  of  an  insolvent  firm  to  devote  the  joint  estate  to  the  individ- 
ual debts  of  its  members,  leaving  the  firm  debts  unpaid.     The  question 
has  never,  so  far  as  we  are  advised,  been  before  the  court,  though  ex- 
pressions may  be  found,  suggestive  of  the   inclination  of  some  of  the 
judges  who  have  been  members  of  the  court,  that  the  dominion  of  the 
partners  over  firm  property  is  not  limited  by  the  existence  of  firm  debts 
and  the  insolvency  of  the  firm. 

In  Schmidlapp  v.  Currie,  55  Miss.  597,  —  a  case  of  a  solvent  firm, 
—  Judge  Chalmers,  while  carefully  limiting  the  decision  to  the  question 
involved  (i.  e.,  the  right  of  a  solvent  firm  to  devote  firm  assets  to  the 
payment  of  the  debts  of  one  of  the  members),  cites  with  apparent 
approval  the  cases  of  Bice  v.  Barnard,  20  Vt.  479  ;  Bank  v.  Sprague, 
20  N.J.  Eq.  14  ;  Allen  v.  Center  Valley  Co.,  21  Conn.  130 ;  and  Sigler 
v.  Bank,  8  Ohio  St.  511,  — which  clearly  hold  that  an  insolvent  firm 
may  devote  firm  assets  to  the  debts  of  its  individual  members  ;  and  also 
Whitton  v.  Smith,  Freem.  Ch.  (Miss.)  231 ;  Freeman  v.  Stewart,  41 
Miss.  139  ;  Carter  v.  Beaman,  6  Jones  (N.  C),  44  ;  Ex  parte  Euffin, 
6  Ves.  119  ;  and  Campbell  v.  Mullett,  2  Swans.  Ch.  553, —  which  are 
sometimes  cited  as  supporting  the  same  view.  In  Bank  v.  Klein,  64 
Miss.  141,  it  was  sought  by  the  creditors  of  a  banking  firm  to  subject 
to  their  demands  the  proceeds  of  certain  life  policies  upon  the  life  ot 


§  3.1  FIRM    TITLE    DEVESTED    BY   ACT    OF   THE   FIRM.  203 

one  of  the  members  in  favor  of  his  wife,  the  premiums  on  which  the 
bill  averred  had  been  paid  with  firm  money,  while  the  bank  was  insol- 
vent. The  answer  denied  the  insolvency  of  the  firm  at  the  time  the 
premiums  were  paid,  and  there  was  no  evidence  on  the  point.  The 
case  was  decided  on  this  point.  Judge  Arnold,  however,  in  delivering 
the  opinion  of  the  court,  gave  expression  to  an  emphatic  dictum,  that 
the  insolvency  of  the  firm  and  its  members  would  not  have  changed  the 
result.  In  addition  to  the  cases  cited  by  Judge  Chalmers  in  Schmid- 
lapp  v.  Cunie,  he  referred  to  the  cases  of  Case  v.  Beauregard,  99  U.  S. 
119.  and  Rooch  u.  Brannen,  57  Miss.  490. 

In  neither  Whitton  v.  Smith,  Freem.  Ch. ;  Freeman  v.  Stewart,  41 
Miss.  ;  Rooch  v.  Brannen,  57  Miss.;  Schmidlapp  v.  Carrie,  55  Miss.  ; 
nor  Bank  v.  Klein,  64  Miss.,  —  was  the  question  now  involved  pre- 
sented for  decision.     In  all  of  these  the  nature  of  the  rights  of  partner- 
ship  creditors   to  resort  to  firm   assets  for  the    satisfaction  of  their 
demands  was  considered,  and  the  decisions  in  the  cases  in  which  the 
point  was  involved  show  that  the  right,  being  a  derivative  one,  and 
resting  on  the  rights  of  the  partners,  had  been  lost  by  the  waiver  of 
the  partners,  under  the  circumstances  of  the  particular  cases.      The 
question  involved  is  res  nova  in  this  State,  and  we  deal  with  it  as  such. 
The    authorities,    with   practical   uniformity,   agree  that  the  right  of 
partnership  creditors  to  have  the  partnership  property  applied  to  the 
payment  of  partnership   debts   is  a  derivative  one,  resting  upon  the 
equities  of  the  partners  as  between  each  other.    The  conflict  of  decision 
arises   with  the  question   whether  the  partners   may,  by  convention, 
waive  their  rights,  and   convert  the  joint  estate  into  severalty,  thus 
subjecting   it   to   the  debts  of  the  individual  members,  or,  by  direct 
appropriation,  apply  the  joint  estate  to  such  debts.     It  is  quite  gener- 
allv  held  that  this  may  be  done  so  long  as  the  partnership  is  solvent, 
and  a  going  concern.     Some  courts  seem  to  hold  that  if  the  partner- 
ship, though  insolvent,  is  yet  engaged  in  the  prosecution  of  its  business, 
it  may  thus  deal  with  the  partnership  estate  ;  and  others,  that  this  may 
be  done  even  though  the  partnership  is  insolvent,  contemplates  disso- 
lution, and  converts  the  joint  into  separate   estates  for  the  purpose  of 
applying  it  to  the  individual  debts  of  its  members.     In  Case  v.  Beau- 
regard, 99  U.  S.  119,  the  insolvent  members  of  an  insolvent  firm  had 
applied  all  the  partnership  property  to  the  payment  of  their  respective 
individual   debts.     The   firm  creditors   sought   to   subject  it  to  their 
demands,  but  relief  was  denied  upon  the  ground  that  the  right  of  firm 
creditors  was  a  derivative  one,  and  could  not  be  enforced  except  so 
long  as  the  partners  themselves  retained  their  liens  upon  the  property. 
Speaking  on  the  precise  point,  the  court  said  :  "  The  bill,  it  is  true, 
charges  that  the    several   transfers  of  the  partners  were   illegal   and 
fraudulent,  without  specifying  wherein  the  fraud  consisted.     The  charge 
seems  to  be  only  a  legal  conclusion  from  the  fact  that  some  of  the  trans- 
fers were  made  for  the  payment  of  the  private  debts  of  the  assignors. 
Conceding  such  to   have  been  the  case,  it  was  a  fraud  upon  the  othel 


204  THE   NATURE    OF   A    PARTNERSHIP.  [CHAP.  in. 

partners,  if  a  fraud  at  all,  rather  than  upon  the  joint  creditors  ;  a  fraud 
which  those  partners  could  waive,  and  which  was  subsequently  waived 
by  the  act  of  fusion."  The  clear  effect  of  this  decision  is  that  it  is  not 
a  fraud  upon  partnership  creditors  for  an  insolvent  firm  to  devote  the 
joint  estate  to  the  payment  of  the  separate  debts  of  the  partners,  leav- 
ing no  provision  for  the  firm  creditors. 

In  no  other  case  we  have  seen  has  the  question  been  presented  where 
the  conversion  of  the  whole  assets  into  separate  estates  or  the  devotion 
of  all  of  them  to  individual  debts  was  involved.  The  reasoning  of  other 
courts,  however,  in  the  following  cases,  would  seem  to  conduct  to  the 
same  conclusion  as  that  reached  in  Case  v.  Beauregard.  Sigler  v.  Bank, 
8  Ohio  St.  511  ;  Rice  v.  Barnard,  20  Vt.  479  ;  Allen  v.  Center  Valley 
Co.,  21  Conn.  130  ;  Winslow  v.  Wallow,  116  Ind.  324  ;  Purple  v.  Far- 
rington,  (Ind.)  4  L.  R.  A.  535  ;  Fletcher  v.  Sharpe,  (Ind.)  1  L.  R.  A. 
179.  See  also  other  cases,  probably  holding  to  the  same  effect,  cited 
in  notes  to  §  560,  1  Bates,  Partn. 

But  the  decided  weight  of  authority  is  that,  while  the  right  of  firm 
creditors  to  go  against  the  firm  property  in  postponement  of  the  right 
of  creditors  of  the  individual  members  is  a  derivative  right,  and  rests 
on  the  right  of  the  members  of  the  firm,  and  while  that  right  is  lost  by 
the  bona  fide  waiver  of  their  rights  by  the  partners,  it  is  not  lawful  for 
the  members  of  the  firm,  in  contemplation  of  insolvency,  to  divert  the 
firm  property,  and  apply  it  to  the  payment  of  the  debts  of  the  individ- 
ual members,  or  to  convert  the  joint  estate  into  estates  in  severalty. 
to  prevent  its  being  seized  by  firm  creditors.  Ex  parte  Mayou,  4  De 
Gex,  J.  &  S.  664  ;  Ex  parte  Snowball,  7  Ch.  App.  Cas.  534 ;  Cron 
v.  Cron's  Estate,  56  Mich.  8  ;  Cribb  v.  Morse,  77  Wis.  322  ;  Willis  v. 
Bremmer,  60  Wis.  622  ;  Menagh  v.  Whitwell,  52  N.  Y.  146  ;  Phelps  v. 
McNeely,  66  Mo.  554;  Reybum  v.  Mitchell,  106  Mo.  365;  Roop 
v.  Herron,  15  Neb.  73 ;  Arnold  v.  Hagerman,  45  N.  J.  Eq.  186  ;  Darby  v. 
Gilligan,  33  W.  Va.  246;  Shackelford  v.  Shackelford,  32  Grat.  503; 
Bank  v.  Sprague,  21  N.  J.  Eq.  530  ;  French  v.  Lovejoy,  12  N.  H. 
458;  Flack  v.  Charron,  29  Md.  311;  Clements  v.  Jessup,  36  N.  J. 
Eq.  569;  Elliott  v.  Stevens,  38  N.  H.  311;  Gallagher's  Appeal,  114 
Pa.  St.  353  ;  Patterson  v.  Seaton,  70  Iowa,  689  ;  Pars.  Prin.  Partn. 
§  106;  Bates,  Partn.  §  563;  Jones,  Mortg.  §  120;  Beach,  Mod.  Eq. 
§§  787,  788  ;  Hare  &  W.  note  to  Silk  v.  Prime,  2  Cas.  Eq.  pt.  1,  353. 
The  principle  controlling  in  these  cases  is  stated  with  precision  by 
Judge  Dixon,  delivering  the  opinion  of  the  court  in  Arnold  v.  Hager- 
man, 45  N.  J.  Eq.  186.  We  quote  from  that  opinion  at  large,  as  we 
adopt  and  affirm  the  reasoning  of  the  court:  "In  equity,  a  partnership 
is  for  some  purposes  deemed  a  single  entity.  Thus,  when  partnership 
property  invested  in  the  business  of  a  partnership  is  to  be  applied  by  a 
court  of  equity  to  the  payment  of  debts,  that  property  is  treated  as 
belonging,  not  to  the  persons  composing  the  firm,  but  to  a  distinct 
debtor,  the  partnership,  and  it  is  used  first  to  liquidate  the  debts,  and 
only  the   surplus,  if  any,  is   surrendered  to  the  individual  partners. 


§  3.1  FIRM    TITLE   DEVESTED    BY   ACT    OF   THE   FIRM.  205 

This  equitable  practice  rests  upon  the  presumed  intentions  of  the  part- 
ners themselves,  and  hence  is  primarily  considered  as  their  equitable 
right  against  each  other.  Consequently,  since  the  decision  of  Lord 
Eldon  in  Ex  parte  Ruffiii,  6  Ves.  ll'J,  it  has  been  generally  held  that 
the  partners  could  put  an  end  to  their  right,  and  that  if,  by  their  agree- 
ment, the  partnership  is  dissolved,  and  its  property  is  assigned  to  one 
of  their  members,  or  to  a  stranger,  as  his  own,  without  reservation  of 
the  right,  the  right  to  have  partnership  debts  paid  out  of  that  property 
is  extinct."  "  Growing  out  of  this  right  of  partners,  has  arisen  a  corre- 
sponding equity  in  partnership  creditors  to  have  their  debts  first  satis- 
fied out  of  the  firm  property,  which  is  now  deemed  a  substantial  element 
of  their  demands.  Generally,  it  may  be  said  that  this  equity  of  credi- 
tors continues  only  so  long  as  the  right  of  the  partners  against  each 
other  subsists,  and  perishes  when  that  terminates  ;  but  this  is  not 
universally  true,  for  this  equity  may  survive  the  right  to  which  it  is 
ordinarily  attached.  In  this  respect  it  resembles  the  claim  which  the 
general  creditors  of  an  individual  have  upon  his  property.  It  is  neither 
an  estate  nor  a  lien.  It  is  ordinarily  but  a  right,  by  lawful  procedure, 
to  acquire  a  lien  during  the  ownership  of  the  debtor.  Yet,  under  cer- 
tain circumstances,  that  lien  may  be  acquired  after  the  debtor's  owner- 
ship has  ended.  This  results  from  the  provisions  of  the  ancient  statute 
for  the  prevention  of  frauds  and  perjuries,  by  force  of  which,  when  a 
person  has  aliened  his  property,  with  intent  to  hinder,  dela}',  or  defraud 
his  creditors,  the  rights  of  those  creditors  remain  as  if  no  alienation  had 
taken  place,  except  against  the  claims  of  bona  fide  purchasers,  for 
good  consideration,  without  notice."  "  Equity  applies  this  statute  to  a 
partnership,  its  property  and  creditors,  just  as  it  would  in  the  case  of 
an  individual ;  and  therefore,  while  it  is  generally  true  that  a  partner- 
ship may  defeat  the  equity  of  its  creditors  by  the  alienation  of  its  prop- 
erty, and  subsequent  extinguishment  of  the  right  of  its  partners  inter 
sese,  yet,  if  the  alienation  be  effected  with  intent  to  hinder,  delay,  or 
defraud  the  firm  creditors  by  defeating  their  equity,  the  claims  of  credi- 
tors will  be  unimpaired,  and  the  property  will  be  treated  as  partnership 
assets,  unless  it  shall  have  passed  into  the  hands  of  those  whom  the 
statute  protects." 

In  Clements  v.  Jessup,  3G  N.  J.  Eq.  5G9,  it  was  said  :  "  Partnership 
creditors,  in  equity,  have  an  inherent  priority  of  claim  upon  partnership 
property  over  individual  creditors,  and  a  transfer  of  partnership  prop- 
erty by  one  partner,  with  the  consent  of  the  other  partners,  or  by  all  of 
the  partners,  to  pay  individual  debts,  is  fraudulent  and  void  as  to  firm 
creditors,  unless  the  firm  was  then  solvent,  and  had  sufficient  property 
remaining  to  pay  the  partnership  debts."  The  recognition  of  this 
equity  in  favor  of  firm  creditors  does  not  impair  any  proper  exercise  of 
the  power  of  the  partnership  over  its  property  or  affairs,  nor  bring 
within  the  control  of  a  court  of  equity  all  partnerships  which  are  insol- 
vent in  fact,  or  in  a  condition  of  temporary  inability  to  meet  their 
obligations.     The  apprehension  of  this  result  seems  to  have  been  infiu- 


206  THE  NATURE  OF  A  PARTNERSHIP.       [CHAP.  III. 

ential  in  leading  the  court,  in  Sigler  v.  Bank,  8  Ohio  St.  511,  to  adopt 
the  opposing  view.  But  the  statute  against  fraudulent  conveyances 
does  not  operate  to  control  the  lawful  dominion  of  individuals,  though 
insolvent,  over  their  property  ;  nor  does  mere  insolvency  confer  juris- 
diction upon  equity  to  take  charge  of  and  administer  their  estates. 
And  yet  it  cannot  be  denied  that  the  statute  does  restrain  the  insolvent 
from  disposing  of  his  estate  for  the  purpose  of  withdrawing  it  from 
liability  to  his  creditors.  Why  should  a  different  rule  be  applied  to  an 
aggregation  of  individuals  than  to  them  separately?  The  inquiry  must 
in  either  case  be  whether  the  purpose  and  effect  of  the  act  is  lawful, 
and  it  may  be  done  by  the  individual  or  by  a  firm  ;  if  unlawful,  the  act 
is  equally  void,  as  to  the  creditors  injured,  whether  it  be  done  by  the 
one  or  the  other. 

But  it  is  again  said  that  it  cannot  be  a  fraud  for  one  to  devote 
whatever  right  of  property  he  has  to  the  payment  of  an  honest  debt. 
This  is  true  if  one  devotes  his  own  property  to  his  own  debts  ;  but  is  it 
not  a  fraud  in  law  if  A.  appropriates  his  property  to  pay  B.'s  debt, 
leaving  his  own  unpaid?  Take  the  case  at  bar.  Durfey  &  Ascher 
appropi'iated  one-half  of  their  joint  estate  to  pay  Ascher's  debt.  Now, 
if  this  was  all  that  had  been  done,  it  would  be  manifest  that  the  creditors 
of  Durfey  could  treat  the  conveyance  as  fraudulent,  because  it  would 
have  been  a  clear  donation  by  Durfey  to  the  creditors  of  Ascher,  at  the 
expense  of  his  creditors,  he  being  insolvent.  But  it  is  said  that  Ascher 
at  the  same  time  conveyed  his  interest  in  the  other  half  of  the  joint 
estate  to  the  creditors  of  Durfey,  and  so  each  conveyance  became  a 
consideration  of  the  other,  and  each  partner  received  a  full  considera- 
tion for  his  release  of  his  right  as  a  partner.  The  reply  is  that  a  full 
consideration  does  not  make  a  contract,  otherwise  unlawful,  valid.  If 
A.  agrees  to  do  one  unlawful  act  if  B.  will  do  another,  of  what  avail  is 
it  that  each  will  reap  a  benefit  from  such  an  act  of  the  other?  Durfey 
had  a  right  to  have  the  partnership  property  applied  to  the  partnership 
debts,  and  Ascher  had  a  like  right.  While  these  reciprocal  rights 
existed,  they  were  of  value  as  property  rights  of  the  debtors  to  a  certain 
class  of  creditors, —  i.  e.,  firm  creditors.  Now,  it  is  manifest  that  for  the 
very  satisfaction  of  their  demands  the  rights  themselves  were  waived, 
and  attempted  to  be  obliterated.  We  are  unable  to  perceive  any  just 
principle  upon  which  the  right  of  a  debtor  can  be  recognized  to  thus 
deal  with  his  estate  for  the  very  purpose  of  obstructing  his  creditors. 

It  is  to  be  noted,  also,  that  neither  partner  could  make  a  cent  by  the 
transaction.  Five  thousand  dollars'  worth  of  property  will  pay 
only  $5,000  of  debts,  whether  its  proceeds  be  applied  to  partnership 
or  individual  liabilities.  The  partners  would,  in  either  event,  after  the 
payment  of  debts  of  either  class,  owe  precisely  the  same  sums.  To 
permit  the  consummation  of  the  scheme  would  be  of  no  benefit  to  them. 
Its  sole  effect  would  be  to  withdraw  the  property  from  one  class  of 
creditors  who  had  created  the  joint  estate,  had  given  credit  on  the  faith 
of  it,  and  had  a  right  to  resort  to  it,  and  to  permit  its  appropriation  to 


OH'- 


S  3.]  FIRM   TITLE    DEVESTED   BY    ACT    OF   THE   FIRM.  20 

another  class,  who  dealt  with  the  individuals  composing  the  firm,  with 
a  full  knowledge  that  all  they  could  get  out  of  the  partnership  assets 
was  what  remained  after  payment  of  the  debts.  The  complainant  is 
entitled  to  the  relief  prayed  by  its  bill. 

The  decree  is  reversed,  and  cause  r<  manded.1 


BANNISTER  et  al.  v.  MILLER  et  al. 

54  X.  J.  Eq.  121 :  2  32  At.  1066.     1S95. 

The  bill  is  filed  by  four  judgment  creditors,  on  behalf  of  themselves 
and  such  other  creditors  as  may  choose  to  come  in,  against  a  partnership, 
for  the  purpose  of  setting  aside,  in  part,  a  mortgage  executed  by  the 
partnership.  The  facts  are  these  :  Edward  A.  Miller  and  Theodore  S. 
Miller  entered  into  a  co-partnership  on  March  7,  1891,  the  partnership 
to  continue  for  four  years  from  May  1,  1891.  By  the  terms  of  the 
articles  of  co-partnership,  each  partner  agreed  to  contribute,  as  capital, 
the  sum  of  84,000.  Mr.  E.  A.  Miller,  of  the  $4,000  which  he  invested, 
borrowed  §2,800  from  Catharine  Barkhorn  and  $1,200  from  Amelia  B. 
Miller.  Mr.  T.  S.  Miller  borrowed  his  $4,000  from  John  Rilly.  The 
sum  of  $8,000  was  deposited  to  the  credit  of  the  firm  on  April  1,  1891. 
On  February  26,  1892,  Edward  A.  Miller  and  Theodore  S.  Miller 
executed  a  chattel  mortgage  covering  all  the  tangible,  and  practically 
all  the  available,  property  belonging  to  the  firm.  The  mortgage  was 
made  to  John  C.  Miller,  as  trustee,  and  by  it  the  trustee  was  authorized 

1  In  Teague  et  al.  v.  Lindsey  et  al.,  106  Ala.  266  :  17  So.  538  (1895),  the  court  said  :  "  A 
partnership,  in  contemplation  of  law,  is  an  entity  distinct  from  the  members  who  compose 
it ;  and,  if  the  partnership  is  insolvent  or  in  failing  circumstances,  an  appropriation  of 
the  partnership  property  or  assets  to  pay  the  separate  debt  of  a  partner  is  a  fraud  up- 
on partnership  creditors.  Pritchett  v.  Pollock,  82  Ala.  169.  The  capital  of  a  partnership 
is  that  which  each  partner  agrees  to  contribute  as  the  basis  for  beginning  or  continu- 
ing the  business.  1  Eates,  Partn.  §  251.  These  contributions  do  not  form  partnership 
debts;  and,  if  a  member  obtain  them  on  his  own  credit,  the  fact  that  they  pass  into 
and  enure  to  the  benefit  of  the  partnership  does  not  render  the  partnership  liable  to 
his  creditor.  Id.  §  446.  But,  when  the  rights  of  partnership  creditors  have  not  inter- 
vened, the  separate  debt  the  partner  has  so  created,  by  the  consent  of  the  several 
partners,  may  he  converted  into  a  partnership  debt.  Id.  §  515.  In  the  original  pur- 
chase of  the  goods  from  Thornton  each  partner  created  a  separate  debt.  If  the  pur- 
chase was  not  in  point  of  time  precisely  coincident  with  the  formation  of  the  partnership, 
it  was  made  in  contemplation  of  ir,  and  of  a  partnership  on  a  basis  of  equality  between 
the  partners.  On  the  commencement  of  the  business  of  the  partnership, their  separate 
debts  were  converted  into  the  debts  of  the  partnership,  the  partnership  not.  then  owing 
any  other  debt.  The  debts  in  the  new  form  given  them  were  founded  on  an  adequate 
and  valuable  consideration,  and.  whatever  may  have  been  the  relation  of  the  partners 
separately  to  Thornton,  they  became,  as  to  the  partners,  partnership  debts.  The 
instructions  we  are  considering  ignore  the  [incontroverted  evidence  showing  that  tin; 
separate  debts  to  Thornton  were  converted  into  partnership  debts." 

-  Affirmed  in  Court  of  Errors,  54  N.  J.  Eq.  701.     A  part  of  the  opinion,  not  bearing 
on  the  law  of  partnership,  has  been  omitted. 


208  THE    NATURE    OF   A   PARTNERSHIP.  [CHAP.  ILL 

to  sell  the  property  assigned  to  him,  and,  after  paying  all  expenses 
incurred  in  selling  the  property,  to  pay  a  list  of  creditors  in  an  order 
mentioned.  He  was  to  pay  John  Rilly  the  sum  of  $4,000,  Catharine 
Barkhorn,  $2,800,  and  Amelia  B.  Miller,  $1,200.  These  three  were  to 
be  first  paid  pro  rata.  After  paying  these  three  creditors,  he  was  to 
pay,  consecutively,  a  list  of  creditors,  the  last  name  upon  which  was 
that  of  one  of  the  complainants,  Lounsbury,  Matthews,  &  Co.  This 
was  the  only  one  of  the  complainants  named  in  the  list.  The  trustees 
proceeded  to  sell,  and  realized  nearly  $14,000.  He  paid  Rilly,  Bark- 
horn,  and  Amelia  B.  Miller  in  full.  He  also  paid  all  of  the  creditors 
named  in  the  list  in  full,  except  Lounsbury,  Matthews,  &  Co.,  the  sum 
still  remaining  in  the  hands  of  the  trustee  being  insufficient  to  pay  to 
the  last  creditor  more  than  the  sum  of  $1,385.71,  which  payment  was 
received  by  said  creditor.  Subsequentby,  four  creditors  of  the  firm 
commenced  actions,  and  obtained  judgments  against  the  firm.  Samuel 
T.  Laird  obtained  a  judgment  of  $3,900.95,  George  E.  Lounsbury  and 
others  a  judgment  of  $4,088.92,  James  A.  Bannister  a  judgment  of 
$4,345.06,  and  the  James  A.  Bannister  Company  a  judgment  for 
$348.44.  Executions  were  issued  upon  these  judgments,  and  returned 
unsatisfied  on  February  7,  1893. 

The  bill  charges  that  the  first  three  creditors  paid  .by  the  trustee 
were  not  firm  creditors,  but  were  creditors  of  the  individual  members 
of  the  firm  ;  that,  there  being  insufficient  firm  assets  to  pay  the  firm 
creditors,  a  diversion  of  $8,000  from  the  receipts  of  the  sale  of  the 
firm  propert}'  to  the  payment  of  individual  creditors  was  a  fraud  upon 
the  former  class  ;  and,  inasmuch  as  the  propert}*  of  the  firm  cannot  be 
traced  in  specie,  the  complainants  ask  that  these  individual  creditors,  who 
received  these  amounts  of  money,  shall  be  decreed  to  repay  them. 
Robert  H.  31c Carter,  for  complainants. 
Philemon  Woodruff  and  F.  W.  Stevens,  for  defendants. 
Reed,  V.  C.  (after  stating  the  facts).     It  is  entirely  clear  that  the 
first  three  named  in  the  schedule  of  creditors,  to  whom  money  realized 
from  the  sale  of  the  firm  property  was  paid,  were  not  creditors  of  the 
partnership,  but  were  creditors  of  the  members  of  the  firm  individually. 
The  amounts  which  make  up  those  three  debts  were  borrowed  by  the 
respective  partners  upon  their  own  credit ;  and  although  the  money  so 
borrowed  constituted   the  capital  with  which  the  firm  commenced  its 
business,  and  was  presumably  used  in  the  business,  yet  the  obligation 
for  its  repayment  rested  entirely  upon  the  individual  by  whom  it  was 
borrowed.     The  doctrine  seems  to  be  entirely  established,  to  use  the 
language  of  Justice  Lindley,  "  that,  if  several  persons  agree  to  become 
partners,  and  to.  contribute  each  a  certain  quantity  of  money  or  goods 
for  the  joint  benefit  of  all,  each  one  is  solely  responsible  to  those  who 
ma}*  have  supplied  him  with  the  money  or  goods  agreed  to  be  contrib- 
uted by  him."     Lindl.  Partn.  202.     The  English  cases  in   support  of 
this  rule  are  to  be  found  in  the  notes  to  the  text  just  mentioned,  and 
the  cases  in  the  American  courts  holding  the  same  doctrine  are  collected 


S  3.1  FIRM   TITLE    DEVESTED    BY   ACT   OF   THE   FIRM.  209 


3 


ov  Mr.  Bates  in  bis  work  on  Partnership,  §  446.  An  analysis  of  those 
cases  would  be  profitless.  They  all  rest  upon  the  obvious  absence  of 
any  agency,  express  or  implied,  in  the  person  borrowing  to  bind  other 
persons  for  what  is  understood  to  be  a  personal  transaction,  entirely 
apart  from  the  business  of  the  firm.  Therefore,  I  find  that  the  debts 
in  question  were  the  debts  of  the  two  Millers  respectively. 

I  also  regard  it  as  entirely  clear  that,  at  the  time  of  the  execution  of 
■She  chattel  mortgage,  the  firm  was  insolvent.  It  had  arrived  at  a  stage 
in  its  business  when  it  was  confronted  with  an  array  of  debts  which 
rendered  its  continuance  practically  impossible.  The  sale  of  all  its 
property  was  made  openly,  and  apparently  under  favorable  conditions. 
It  did  not  realize  enough  to  pay  the  partnership  debts  ;  and,  after 
deducting  the  88,000  which  was  paid  to  the  first  three  on  the  list  of 
creditors,  the  deficit  between  the  assets  remaining  and  the  partnership 
debts  is  marked.  The  question  remains  whether,  in  this  posture  of 
affairs,  the  firm  possessed  the  ability  to  apply  any  of  its  assets  to  the 
payment  of  those  three  debts. 

A  firm  can  do  as  it  pleases  with  its  property  so  long  as  it  retains 
enough  to  pay  its  creditors.  When,  however,  it  is  so  placed  that  any 
devotion  of  its  assets  to  a  purpose  other  than  its  own  business,  or  the 
liquidation  of  its  own  debts,  wrongs  its  own  creditors,  its  power  to  so 
divert  ceases.  And  the  payment  of  the  individual  debt  of  its  members 
is,  under  these  conditions,  a  diversion  of  its  assets.  In  dealing  with 
the  estate  of  an  insolvent  firm,  or  an  insolvent  member  of  the  firm,  the 
courts  of  equity  in  England  draw  a  sharp  line  between  the  two  classes 
of  creditors.  The  joint  property  is  devoted  to  the  payment  of  the  joint 
debts,  and  separate  debtors  are  paid  out  of  the  separate  estate  of  each 
partner.  Lindl.  Partn.  693.  This  principle  was  recognized  and  applied 
in  this  State  by  Chancellor  Green,  in  Matlack  v.  James,  13  N.  J.  Eq. 
126,  and  in  the  Court  of  Appeals  by  Mr.  Justice  Depue,  in  Clements  v. 
Jessup,  36  N.  J.  Eq.  569,  and  Mr.  Justice  Dixon,  in  Arnold  v.  Hager- 
man,  45  N.  J.  Eq.  186. 

It  is,  indeed,  insisted  by  counsel  for  the  defendants  that  the  equity  of 
partnership  creditors  in  the  partnership  assets  is  a  derivative  one,  rest- 
ing upon  their  right  to  be  subrogated  to  the  right  of  each  partner  to  have 
the  joint  assets  applied  to  the  liquidation  of  the  joint  liabilities  ;  and  it 
is  argued  that,  as  the  partners  have  parted  with  their  rights  by  the 
execution  of  this  chattel  mortgage,  therefore  the  equity  of  the  firm 
creditors  is  extinct.  But,  as  is  pointed  out  in  the  last  mentioned  case, 
the  right  of  firm  creditors  to  follow  firm  assets  may  subsist  by  force  of 
the  statute  of  frauds,  after  the  ownership  has  passed  from  the  firm  to 
others.  As  an  instance  where  this  rule  came  into  operation,  the  case 
of  Mialack  v.  James,  *"/>/■>>.  was  mentioned,  in  which  case  two  members 
of  a  firm,  consisting  of  four,  conveyed  their  individual  half  interest  in 
land  held  for  partnership  purposes  to  an  outsider,  to  pay  their  indi- 
vidual debts.  The  opinion  also  cites  with  approval  the  language  of 
Justice  Depue  in  Clements  v.  Jessup,  supra  •  "  Partnership  creditors, 

14 


210  THE    NATURE    OF    A   PARTNERSHIP.  [CHAP.  IIL 

in  equity,  have  an  inherent  priority  of  claim  upon  partnership  property 
over  individual  creditors,  and  a  transfer  of  partnership  property  by  one 
partner  with  the  consent  of  the  other  partners,  or  by  all  the  partners, 
to  pay  individual  debts,  is  fraudulent  and  void  as  to  firm  creditors, 
unless  the  firm  was  then  solvent,  and  had  sufficient  property  remaining 
to  pay  the  partnership  debts."  I  conclude,  therefore,  that  those  pro- 
visions contained  in  the  chattel  mortgage  which  provided  for  the  diver- 
sion from  the  firm  assets  of  a  sum  sufficient  to  pay  the  three  individual 
debts  already  mentioned  were  a  fraud  upon  the  partnership  creditors. 
The  firm  creditors  have  a  footing  in  a  court  of  equity  to  follow  and 
reclaim  such  assets,  so  far  as  it  is  essential  to  the  liquidation  of  their 
claims.  Van  Doren  v.  Stickle,  24  N.  J.  Eq.  331,  affirmed  27  N.  J.  Eq. 
498.   ... 

I  will  advise  a  decree  that  the  individual  creditors  of  the  members  of 
the  firm  be  declared  to  hold  the  property  they  had  received  from  the 
trustee,  under  the  chattel  mortgage,  in  trust  for  the  creditors  of  the 
firm  ;  that  a  receiver  be  appointed  to  receive  and  disburse  such  money, 
and  that  the  said  Catharine  Barkhorn,  Amelia  B.  Miller,  and  John 
Rilly  be  decreed  to  pay  to  the  receiver  the  moneys  that  they  have 
received  from  the  trustee  under  the  chattel  mortgage. 


§  3.  Devested  by  Act  of  One  Partner. 

LAMBERT'S   CASE. 

Godbolt,  244.     1614. 

Two  men  were  partners  in  goods :  the  one  of  the  partners  sold  unto 
J.  S.,  at  several  times,  goods  to  the  value  of  £100,  and  for  the  goods 
at  one  time  bought  he  paid  the  monej'  according  to  the  time  ;  after- 
wards an  action  was  brought  by  one  of  the  partners  for  the  rest  of  the 
money,  and  the  plaintiff  declared  upon  one  contract  for  the  whole 
goods,  whereas  in  truth  they  were  sold  upon  several  contracts  made, 
and  the  defendant  in  that  case  would  have  waged  his  law.  But  the 
court  advised  the  plaintiff  to  be  non-suit,  and  to  bring  a  new  action, 
because  that  action  was  not  well  brought,  for  it  ought  to  have  been  a 
several  action  upon  the  several  contract.  And  in  this  case  it  was 
agreed  by  the  court,  that  the  sale  of  one  partner  is  the  sale  of  them 
both ;  and  therefore  although  that  one  of  tbem  selleth  the  goods  or 
merchandiseth  with  them,  yet  the  action  must  be  brought  in  both  their 
names  ;  and  in  such  case  the  defendant  shall  not  be  received  to  wage 
his  law,  that  the  other  partner  did  not  sell  the  goods  unto  him,  as  is 
supposed  in  the  declaration. 


§  3.]  DEVESTED  BY  ACT  OF  ONE  PARTNER.  211 

THOMPSON  et  al.    v.  BROWN  et  al. 
Moody  &  Malkin,  40.    1S27. 

Assumpsit  for  goods  sold  and  delivered.  Defendants  were  partners 
from  January  1,1824,  to  January  1,  1825.  Before  the  partnership, 
Brown  was  indebted  to  the  plaintiffs  in  the  sum  of  £64,  and  during  the 
partnership  it  became  indebted  to  plaintiffs  to  the  amount  of  £210. 
Early  in  1824.  Brown  paid  to  plaintiffs  a  check  for  £60,  and  after  the 
dissolution  £150  was  paid  by  Weston.  It  was  doubtful  on  the  evidence 
whether  the  check  for  £60  belonged  to  the  firm  or  to  Brown  ;  and  it  was 
contended  for  the  plaintiffs  that  the  payment  having  been  made  without 
any  appropriation,  the  plaintiffs  were  at  liberty  to  apply  it  to  the  first 
items  in  the  account,  and  in  that  case  the  defendants,  as  partners,  would 
still  be  liable  for  the  balance  of  the  partnership  debt. 

Scarlett  <£  Chilton,  for  the  plaintiffs. 

Gurnet/  &  Campbell,  for  the  defendants. 

Abbott,  Ld.  C.  J.  The  general  rule  certainly  is,  that  when  money 
is  paid  generally,  without  any  appropriation,  it  ought  to  be  applied  to 
the  first  items  in  the  account ;  but  the  rule  is  subject  to  this  qualifica- 
tion, that  when  there  are  distinct  demands,  one  against  persons  in 
partnership,  and  another  against  one  only  of  the  partners,  if  the  money 
paid  be  the  money  of  the  partners  the  creditor  is  not  at  liberty  to  apply 
it  to  the  payment  of  the  debt  of  the  individual ;  that  would  be  allowing 
the  creditor  to  pay  the  debt  of  one  person  with  the  money  of  others. 
The  question  for  you  is,  was  this  check  the  property  of  the  partners 
or  not?  Verdict  for  the  defendants. 


TAPLEY  v.  BUTTERFIELD. 

1  Met.  (Mass.)  515.     1840. 

Plaintiff  claimed  title  to  the  goods  under  a  mortgage.  Defendant 
justified  his  taking  of  the  goods  under  a  writ  of  attachment  in  a  suit  by 
firm  creditors  against  the  firm  of  A.  &  W.  A.  Blaisdell.  The  mort- 
gage covered  the  whole  stock  of  that  firm,  and  was  executed  in  the 
names  of  both  partners  by  A.  Blaisdell,  with  one  seal  attached.  It 
was  given  in  payment  of  a  firm  debt  of  $650  due  to  plaintiff.  On  the 
trial,  W.  A.  Blaisdell  testified  that  if  he  had  been  present  he  should 
not  have  executed  the  mortgage.  Verdict  for  plaintiff  subject  to  the 
opinion  of  the  full  court. 

Wentworth,  for  the  defendant. 

L.  Williams,  for  the  plaintiff. 

Shaw,  C.  J.  .  .  .  We  are  not  aware  that  a  mortgage  of  personal 
property  requires  a  deed.  If  an  act  be  done,  which  one  partner  may 
do  without  deed,  it  is  not  the  less  effectual  that  it  is  done  by  deed. 
•  •  .  Then  treating  this  as  an  efficient  act  of  one  partner  in  giving  a 


212  THE   NATURE    OF   A   PARTNERSHIP.  [CHAP.  III. 

mortgage  upon  the  partnership  property  for  the  security  of  a  partner- 
ship debt,  is  it  sufficient  to  bind  the  property? 

It  is  within  the  scope  of  partnership  authority  for  one  partner  to  sell 
and  dispose  of  all  the  partnership  goods,  in  the  orderly  and  regular 
course  of  business.  It  is  also  within  the  scope  of  partnership  authority 
to  pay  the  debts  of  the  firm,  and  to  apply  the  assets  of  the  firm  for 
that  purpose.  He,  being  authorized  to  sell  the  goods  to  raise  money  to 
pa}-  their  debts,  may  apply  the  goods  directly  to  the  payment  of  the 
debts  ;  and,  according  to  the  exigencies  of  the  occasion,  he  may  pledge 
the  partnership  goods  to  raise  money  to  pay  the  debts  of  the  firm. 
To  this  extent  we  think  each  partner  has  a  disposing  power  over  the 
partnership  stock,  arising  necessarily  from  the  nature  of  that  relation. 
If  it  were  in  the  form  of  a  consignment  to  a  commission  merchant  or 
an  auctioneer,  and  an  advance  of  money  obtained  for  the  use  of  the 
firm,  we  think  there  could  be  no  question  but  that  it  would  be  within 
the  scope  of  partnership  authority.  And  now  that  the  law  has  given 
encouragement  to  mortgages  of  personal  property,  which  is  only  an- 
other mode  of  pledging  goods,  and  has  substituted  an  instrument  in 
writing  capable  of  being  recorded  in  the  town  clerk's  book,  and  has 
given  to  such  record  an  effect  equivalent  to  the  actual  deliver}7  of  the 
goods,  Bullock  v.  Williams,  16  Pick.  33,  we  cannot  perceive  why  it 
may  not  be  resorted  to  by  partners  as  well  as  individual  persons.  To 
what  extent  one  partner  can  bind  another  in  the  disposition  of  the  en- 
tire property  of  the  concern,  is  a  question  of  power,  arising  out  of  the 
relation  of  partnership,  and  does  not,  we  think,  depend  upon  the  form 
or  manner  in  which  it  is  exercised.  Lands  held  by  partners  are  con- 
sidered as  lands  held  by  tenants  in  common  ;  and  as  one  tenant  in 
common  cannot  pass  any  estate  of  his  co-tenant,  and  as  land  cannot 
pass  without  deed,  it  follows  that  one  partner  caunot  convey  away  the 
real  estate  of  the  firm  without  special  authority. 

But  considering  that  the  authority  of  selling  and  pledging  the  personal 
property  is  within  the  scope  of  partnership  power,  and  may  be  done  by 
either  partner,  and  considering  that  it  may  be  done  without  deed,  the 
court  are  of  opinion  that  such  a  mortgage,  made  by  one  partner  in  the 
absence  of  the  other,  although  unnecessarily  made  by  deed,  was  bind- 
ing upon  the  property,  and  constituted  a  valid  lien  upon  the  property, 
which  the  plaintiff  may  avail  himself  of.  Anderson  v.  Tompkins,  1 
Brock.  456  ;  Deckard  v.  Case,  5  Watts,  22.   .  .  . 

Judgment  on  the  verdict. 


MABBETT  v.  WHITE  et  al. 

12  N.  Y.  442.     1855. 

Action   of  replevin   to  recover  merchandise  which  plaintiff,   James 
Mabbett,  claimed  had  been  sold  to  him  by  the  firm  of  J.  S.  Fountain 


§3J 


DETESTED    BY   ACT    OF   ONE    TA.RTXER.  213 


&  Co.,  in  payment  of  a  debt  owing  by  that  firm  to  him.  The  bill  of 
sale  was  made  by  one  of  the  partners,  Hannah  Mabbett,  by  her  attorney 
in  fact,  H.  F.  Mabbett,  without  Fountain's  consent,  and  Fountain  re- 
fused to  permit  plaintiff  to  take  the  goods,  and  brought  a  suit  in 
chancery  to  enjoin  any  interference  with  them.  Pending  that  action, 
defendants  levied  on  the  goods,  under  an  execution  against  II.  F. 
Mabbett  &  J.  S.  Fountain,  a  firm  which  had  been  succeeded  by  J.  S. 
Fountain  &  Co.     Plaintiff  had  judgment. 

Francis  B.  Cutting,  for  the  appellants. 

L.  B.  Shepard,  for  the  respondent. 

Hand,  J.  (After  deciding  that  the  firm  of  Mabbett  &  Fountain  had 
been  dissolved,  and  succeeded  by  the  firm  of  J.  S.  Fountain  &  Co., 
consisting  of  Fountain  and  Hannah  Mabbett,  and  that  the  latter  had 
given  a  valid  power  of  attorney  to  H.  F.  Mabbett  to  do  every  act 
necessary  to  be  done  by  a  partner,  continued:)  The  principal  ques- 
tion in  this  case  is,  as  to  the  power  of  Hannah,  by  her  attorney,  to 
convey  or  transfer  the  property  in  question  to  the  plaintiff.  No  doubt, 
if  the  transaction  between  Henry  and  Hannah  Mabbett  was  for  the 
purpose  of  defrauding  the  creditors  of  Mabbett  &  Fountain,  or  the 
transfer  to  the  plaintiff  was  for  that  purpose,  or  to  defraud  the  credi- 
tors of  J.  S.  Fountain  &  Co.,  such  transfers  were  void  as  against  the 
creditors  of  those  firms,  respectively,  whether  with  or  without  the 
concurrence  of  Fountain.  On  these  points,  the  jury  have  found  for 
the  plaintiff.  But  the  judge  at  the  circuit  also  told  the  jury  that  the 
assent  of  the  partner,  Fountain,  was  not  necessary  if  there  was  no 
intention  to  defraud.  In  order,  therefore,  to  sustain  this  judgment, 
we  must  hold  that  where  there  is  a  debt  due  to  a  bona  fide  creditor 
from  the  firm,  one  member  of  it  may  transfer  all  the  goods  and  chattels 
of  the  firm  to  such  creditor  to  pay  the  debt,  without  the  knowledge  or 
consent  of  the  other  partner  who  was  present,  or  could  have  been  con- 
sulted, there  being  no  intention  to  defraud  the  creditors  of  the 
firm.   .  .   . 

The  relation  subsisting  between  partners  is  of  the  most  intimate  and 
confidential  nature.  They  are  joint  tenants  of  the  stock  and  effects 
of  the  company ;  their  interests  are  joint  and  mutual,  and  each  is 
seized  per  my  et  per  tout ;  each  has  entire  possession  as  well  of  every 
part  as  of  the  whole ;  and  each  of  two  partners  has  an  undivided 
moiety  of  the  whole,  and  not  the  undivided  whole  of  a  moiety.  A 
partnership  is  a  voluntary  association  by  which,  in  all  the  affairs  con- 
nected with  the  business,  an  authority  is  impliedly  given  to  every 
member  to  dispose  of  the  partnership  property  as  if  it  were  his  own 
personal  effects.  Such  is  the  indivisible  nature  of  their  interest,  and 
the  capacity  of  every  member  to  act  as  the  authorized  agent  of  all, 
that  whatever  one  does  in  the  course  of  the  partnership  business  has 
the  >ame  efficacy  as  if  all  had  severally  and  directly  joined  in  the  act. 

lint  it  is  said  the  disposition  of  all  the  personal  effects  of  the  firm 
to  pay  one  creditor,  without  the  consent  of  the  other  member  of  the 


214  THE   NATURE    OF   A    PARTNERSHIP.  [CHAP.  III. 

firm,  when  he  is  present  or  can  be  consulted,  is  not  an  act  in  the  course 
of  the  partnership  business,  but  is  a  virtual  dissolution  of  the  partner- 
ship, and  fraudulent  as  to  such  member.  But,  as  we  have  seen,  one 
partner,  in  the  absence  of  fraud  on  the  part  of  the  purchaser,  has  the 
complete  jus  disponendi  of  the  whole  of  the  partnership  interest.  The 
author  of  a  treatise  on  mercantile  law  lays  down  the  broad  proposi- 
tion :  "  Provided  the  contract  have  a  sufficient  relation  to  the  business 
of  the  firm  ;  and  the  contractor  have,  in  other  respects,  acted  bona 
Jide,  it  matters  not  much  what  may  be  its  description,  nor  how  grievous 
the  contracting  partner's  fraud  and  misconduct."  Smith's  Mer.  Law, 
79.  And  the  cases  seem  to  go  to  that  extent.  See  Coll.  Partn.  §  445 
et  seq.;  Cary  on  Partn.  29,  30.  And,  certainly,  a  creditor  has  a 
right  to  seek  and  obtain  from  his  debtor  a  preference  for  or  pa}'ment 
of  his  debt  to  the  exclusion  of  other  creditors,  and  that  without  the 
imputation  of  fraud  upon  either  part}'.  I  do  not  saj-  that  in  no  case 
would  equity  interfere  in  favor  of  a  firm  against  a  third  person,  in 
case  of  a  contract  of  sale  by  one  member.  But  this  is  an  action  at 
law  between  creditors,  and  the  jury  have  negatived  all  fraud  in  fact 
on  the  part  of  the  plaintiff ;  so  that  it  is  simply  a  question  as  to  the 
power  of  sale  by  one  member,  without  the  consent  of  the  other,  of  all 
the  partnership  effects  to  pay  the  partnership  debts.  If  the  title  to 
the  articles  of  merchandise  in  question  passed  at  law,  the  judgment 
must  be  affirmed.  This  sale  may  have  broken  up  the  firm  ;  but  there 
was  no  agreement  between  the  members  of  the  firm  of  J.  S.  Fountain 
&  Co.  that  it  should  continue  for  any  definite  period.  But  if  there 
had  been,  the  dissolution  (if  such  was  the  result)  was  a  mere  conse- 
quence which  did  not  affect  the  sale.  This  jus  disponendi  of  each 
partner  is  for  the  advantage  of  trade  and  commerce,  and  no  doubt 
strengthens  the  credit  and  benefits  the  partners  themselves  ;  but,  how- 
ever that  may  be,  it  is  sufficient  for  the  creditor  who  receives  the 
property  in  pa}'ment  of  his  debt  that  it  exists  and  has  been  exercised 
in  his  favor  without  any  fraud  on  his  part. 

The  judgment  must  be  affirmed. 

Gardiner,  C.  J.,  Dean,  Crippen,  and  Marvin,  JJ.,  concurred. 

Denio  and  Johnson,  JJ.,  dissented.1 

1  In  Ellis  v.  Allen,  80  Ala.  515:  36  A.  L.  J.  164  (1887),  it  is  declared  that  "just 
and  open  dealing  between  partners  requires  that  the  co-partner,  if  conveniently  acces- 
sible, and  no  sudden,  imperative  exigency  arises,  should  be  consulted,  before  one  partner 
undertakes  to  sell  the  entire  stock,  either  for  cash,  or  to  a  creditor,  in  respect  to 
which  each  has  equal  right  and  authority.  When  the  power  is  so  exercised,  the 
transaction  is  at  least  open  to  suspicion  of  undue  advantage.  .  .  .  But  though  one 
partner  may  undertake  to  dispose  of  the  partnership  property,  the  other  partner  is 
not  powerless.  He  may  protect  himself  by  forbidding  or  dissenting  before  the  sale  is 
completed." 


§  3.]  DEVESTED  BY  ACT  OF  ONE  PARTNER  215 

BRICKETT  v.   DOWNS. 

163  Mass.  70:  39  N.  E.  776.     1S95. 

Shoret  &  Brickett  were  coal  dealers.  Defendant  rendered  ser- 
vices as  a  dentist  to  Shorey  and  bis  family,  and  received,  in  payment 
therefor,  coal,  which  he  knew  came  from  the  firm.  The  firm  went  into 
insolvency,  and  the  assignee  sold  to  plaintiff  the  firm  accounts,  including 
the  one  in  suit  for  the  coal  delivered  to  defendant. 

The  defendant  asked  the  judge  to  rule  that,  on  the  evidence,  plaintiff 
could  not  recover.  The  judge  refused  so  to  rule,  said  that  there  was 
no  evidence  of  actual  fraud  on  the  part  of  the  defendant,  and  ruled,  as 
requested  by  the  plaintiff,  that  if  Shorey,  a  member  of  the  firm  of 
Shore}*  &  Brickett,  and  the  defendant,  without  the  knowledge  or  con- 
sent of  Brickett,  agreed  that  the  defendant,  a  dentist,  should  buy  coal 
from  said  firm,  and  pa}'  therefor  with  professional  services  to  be 
rendered  said  Shorey  or  his  family,  and  the  coal  declared  on  in  this 
action  was  delivered  thereunder  to  the  defendant  without  any  knowl- 
edge of  said  agreement  on  the  part  of  said  Brickett,  or  his  assent 
thereto,  and  dental  services  to  an  amount  equal  to  or  exceeding  the 
price  of  said  coal  were  so  rendered  said  Shorey  or  his  family,  then  said 
agreement  was  a  fraud  on  said  firm,  said  dental  services  were  no  de- 
fence to  this  action,  and  the  plaintiff,  under  all  the  circumstances  of 
the  case,  could  recover.     Defendant  alleged  exception. 

Okas.  J.  Jfclntire,  for  plaintiff. 

George  W.  Poore,  for  defendant. 

Kxowltox,  J.     The  arrangement  made  between  the  defendant  and 
Shorey,  a  member  of  the  firm  of  Shorey  &  Brickett,  that  the  coal  de- 
livered to  the  defendant  by  Shorey  &  Brickett  should  be  paid  for  by 
setting  off  the  private  debt  of,  Shorey  to  the  defendant,  and  the  settle- 
ment made  on  this  basis  between  Shorey  and  the  defendant,  without 
the  knowledge  of  Brickett,  were  a  fraud  upon  the  firm,  and  are  of  no 
effect  as  against  the  plaintiff.     The  finding  of  the  judge  that  there  was 
no  evidence  of  actual  fraud  on  the  part  of  the  defendant  must  mean 
that  there  was  no  evidence  of  a  wrongful  purpose,  but  only  evidence 
of  the  legal  fraud  set  out  in  the  bill  of  exceptions.     The  facts  proved 
are  prima  facie  evidence  of  fraud  upon  the  partnership,  which  requires 
a  finding   in  favor  of  the  plaintiff,  unless  facts  or  circumstances  are 
shown   which  might  justify   the  defendant   in  believing   that   the  set- 
tlement was  authorized  expressly  or  impliedly   by  the  other  partner. 
To  receive  property  of  a  partnership  from  one  of  the  partners  in  pay- 
ment of  his  personal  debt,  without  the  consent  of  his  co-parfiuT,  is  no 
less  a  fraud  upon  the  partnership  than  to  pay  a  debt  due  the  firm  by- 
doing  or  furnishing  something  for  the  personal  use  of  one  of  its  mem- 
bers.    Such  an  arrangement  accompanying  the  receipt  of  partnership 
property  would  be  void  against  the  other  partner,  and  would  leave  the 
party  receiving  the  property  liable  upon  an  implied  contract  to  pay  the 


216  THE    NATURE    OF    A    PARTNERSHIP.  '        [CHAP.  III. 

firm  its  value.  Homer  v.  Wood,  11  Cush.  62  :  Williams  v.  Brimhall, 
13  Gray,  4G2  ;  Tay  v.  Ladd,  15  Gray,  296  ;  Farley  v.  Lovell,  103 
Mass.  387 ;  Locke  v.   Lewis,   124    Mass.    1. 

The  reasons  for  holding  that  the  plaintiff  could  not  maintain  his 
action  in  Homer  v.  Wood,  ubi  supra,  do  not  apply  to  this  case.  This 
plaintiff,  in  order  to  maintain  his  action,  is  not  obliged  to  set  up  the 
fraud  of  a  person  joined  with  him  as  co-plaintiff  on  the  record.  He 
succeeds  to  all  the  rights  of  the  assignee  and  of  the  firm,  and  he  is  free 
from  the  embarrassment  which  would  attend  an  attempt  by  the  mem- 
bers of  the  firm  to  maintain  an  action  jointly  in  their  own  names.  By 
Pub.  St.  c.  157,  §  109,  it  is  expressly  provided  that  "  suits  .upon 
claims  sold  hy  assignees  shall  be  brought  in  the  name  of  the  pur- 
chasers." The  defendant's  settlement  with  Shore}T  being  ineffectual  to 
bar  the  debt,  the  plaintiff  can  recover  the  full  amount  of  the  debt,  as 
the  assignee  could  have  done  if  it  had  not  been  sold. 

Exceptions  overruled. 


H.  B.    CLAFLIN  CO.    et  al.  v.  EVANS  et  al. 

45  N.  E.  3:  55  Ohio  St.     1896. 

Williams,  C.  J.  The  plaintiffs  in  error,  it  is  conceded,  are  entitled 
to  share  in  the  fund  for  distribution  by  the  assignee  ratably  with  the 
creditors  who  were  accorded  priority  by  the  judgment  below,  unless  the 
assignment  is  invalid,  or  did  not  take  effect  until  after  the  executions 
were  levied. 

The  validity  of  the  assignment  is  questioned  on  the  ground  that, 
though  executed  in  the  name  of  the  firm,  it  was  so  executed  by  one  of 
the  partners  only,  and  without  having  obtained  the  consent  of  the  other. 
That  one  member  of  an  insolvent  firm  cannot  make  a  valid  assignment 
of  the  partnership  effects  to  a  trustee  for  the  benefit  of  its  creditors, 
against  the  expressed  will  of  a  co-partner,  or  without  his  assent,  when 
he  is  present  or  accessible,  was  held  by  this  court  in  Holland  v.  Drake, 
29  Ohio  St.  441.  That  decision  is  placed  upon  the  ground  that  the 
appointment  of  a  trustee  to  dispose  of  the  effects  of  the  firm  for  the 
benefit  of  its  creditors  is  not  within  the  contemplation  of  the  ordinary 
partnership,  or  the  usual  course  of  its  business,  and  therefore  beyond 
the  scope  of  the  agency  arising  from  the  partnership  relation.  The 
contrary  doctrine  is  maintained  by  high  authority,  and  -with  much  show 
of  reason. 

It  is  not  doubted  that  one  partner  may  sell  any  part  of  the  partner- 
ship property  to  one  or  more  of  the  creditors  in  payment  of  the 
partnership  indebtedness,  or  sell  all  of  its  effects  to  all  of  its  creditors  ; 
and,  if  insufficient  to  satisfy  their  debts  in  full,  the  sale  may  be  so  made 
to  them  as  to  secure  a  pro  rata  division  ;  and  it  is  not  surprising  that 
authorities  are  found  which  strenuously  maintain  that  the  power  of  the 


§  3.]  DETESTED  BY  ACT  OF  ONE  PARTNER.  217 

partner  to  accomplish  the  same  result  by  an  assignment  to  a  trustee 
to  make  such  distribution  is  included  in  the  agency  resulting  from  the 
partnership  relation.  The  dissolution  of  the  partnership  ensues  not 
less  certainly  from  a  sale  of  the  whole  of  its  effects  directly  to  the 
creditors  than  from  the  transfer  to  a  trustee  for  their  benefit.  But  we 
are  not  disposed  to  depart  from  the  rule  laid  down  in  Holland  v.  Drake, 
supra,  nor  are  we  disposed  to  extend  it. 

It  does  not  apply  where  the  partner  whose  assent  has  not  been 
obtained  to  the  assignment  was  not  accessible  in  the  exigency  which 
seemed  to  call  for  immediate  action,  nor  where  his  authority  or  assent 
may  be  fairly  implied  from  the  situation  of  the  parties,  or  the  manner 
of  conducting  the  business.  In  the  case  referred  to,  the  partner  whose 
assent  was  lacking  not  only  resided  in  the  city  where  the  partnership 
had  its  place  of  business,  but  he  was  the  active  managing  member  of 
the  firm,  having  control  and  management  of  its  property  and  business. 
The  circumstances  were  such  as  to  repel,  rather  than  give  rise  to,  any 
inference  of  authority  or  assent  by  him  to  a  final  disposition  of  the 
firm  effects  by  his  co-partner,  who  had  taken  no  active  part  in  its 
affairs. 

The  situation  is  reversed  in  the  case  we  have  before  us.  Here  the 
partner  who  executed  the  assignment  was  the  active  managing  member 
of  the  firm,  having  the  entire  charge  and  control  of  the  partnership 
business  and  custody  of  its  property  ;  and  it  is  plainly  inferable  from 
the  permanent  absence  of  the  other  partner,  and  his  total  inattention  to 
the  business,  that  he  intended  to  intrust  the  affairs  of  the  firm  wholly 
to  the  resident  partner.  The  absent  partner,  having  withdrawn  from 
participation  in  the  conduct  of  the  partnership  affairs,  and  being  inac- 
cessible for  consultation  and  advice,  might  reasonably  expect  and  be 
held  to  intend  that  the  member  placed  in  control  should  not  only  exer- 
cise the  implied  powers  of  agency  ordinarily  possessed  by  a  partner, 
but,  in  addition,  should  have  the  discretionary  power  in  case  of  emer- 
gency to  do  what,  under  the  circumstances,  should  appear  to  be  just 
and  proper  in  the  disposition  of  the  firm  property.  And  where  a  com- 
mercial house  so  situated  is  overtaken  by  financial  distress  amounting 
to  obvious  insolvency,  the  authority  of  the  acting  partner  to  appropriate 
the  property  to  the  creditors  equally,  by  placing  it  in  the  hands  of  a 
trustee  for  that  purpose,  may  well  be  presumed,  in  the  absence  of 
express  dissent  by  the  co-partner,  or  of  circumstances  which  would 
fairly  indicate  his  dissent.  Equality  among  creditors  of  equal  merit  is 
favored  in  equity,  and  accords  with  natural  justice  ;  and  a  disposition 
of  the  partnership  assets,  in  case  of  insolvency,  which  secures  that 
equality,  the  courts  will  not  be  eager  to  disturb. 

The  validity  of  an  assignment  of  the  partnership  property,  executed 
by  one  partner  in  the  name  of  the  firm,  under  circumstances  similar  to 
those  existing  in  the  present  case,  was  sustained  in  an  opinion  by  Chief 
Justice  Marshall  in  Anderson  v.  Tompkins.  1  Brock.  456,  and  also  by 
the  same  learned  judge  in  Harrison  v.  Sterry,  5  Crauch,  289.     And  it 


218  THE   NATURE   OF   A   PARTNERSHIP.  [CHAP.  III. 

was  held  in  McCullough  v.  Sommerville,  8  Leigh,  415,  that,  "when  a 
partner  resides  out  of  the  State  where  the  partnership  business  is  carried 
on,  the  managing  partner  in  charge  of  the  business  may  make  a  valid 
assignment  of  the  firm  effects  for  the  benefit  of  its  creditors."  "We  find 
no  difficult}',  therefore,  in  sustaining  this  assignment,  both  on  reason 
and  authority,  without  calling  in  question  the  decision  in  Holland  v. 
Drake,  supra.  .  .  .  The  judgment  below  must  be  reversed,  the  applica- 
tion of  the  defendants  in  error  overruled,  and  the  cause  remanded  to 
the  probate  court  for  further  proceedings. 

Judgment  accordingly. 


§  3.    Not  Devested  by  Sale  of  a  Partner's  Interest. 

DONER  et  al.  v.   STAUFFER  et  al. 

1  P.  &  W.  (Pa.)  198.     1829. 

This  was  a  feigned  issue,  directed  by  the  court,  and  joined  between 
the  defendants  in  error,  who  were  the  plaintiffs  below  (and  for  whom 
the  verdict  passed),  and  the  plaintiffs  in  error,  who  were  the  defendants 
below. 

It  appeared  from  the  evidence  in  the  cause  that  Daniel  Howr}-  and 
Benjamin  B.  Eshelman  entered  into  partnership  in  a  manufacturing 
establishment,  under  the  firm  of  Howiy  &  Eshelman.  They  became 
considerably  indebted.  Judgments  were  entered  and  executions  were 
issued  against  each  of  them.  Abraham  Doner,  Samuel  Herr,  John 
Howry,  and  Samuel  Howiy  had  severally  judgments  against  Daniel 
Howry,  on  each  of  which  an  execution  issued  against  him,  and  was 
levied  on  the  9th  of  August,  1825,  on  the  personal  property  of  Daniel 
Howry  and  Benjamin  B.  Eshelman,  as  partners  in  trade. 

John  Stauffer,  Christian  Breekbill,  and  Jacob  Eshelman  had  severally 
obtained  judgments  against  B.  B.  Eshelman,  on  each  of  which  judg- 
ments an  execution  was  issued  against  him,  and  levied  on  the  11th  day 
of  August,  1825,  on  Benjamin  B.  Eshelman's  share  of  the  personal 
property  of  Benjamin  B.  Eshelman  and  Daniel  Howry,  as  partners  in 
trade.  By  virtue  of  these  and  other  executions  the  personal  property 
of  the  firm  was  sold  for  the  sum  of  five  thousand  and  seventy  dollars 
and  thirty-nine  cents,  which,  after  payment  of  the  costs,  left  a  balance 
of  four  thousand  seven  hundred  and  seventy-nine  dollars.  This  balance 
was  paid  into  court  for  distribution. 

On  a  rule  obtained  by  the  counsel  of  Stauffer,  Breekbill,  and  Eshel- 
man, to  show  cause  why  the  one  half  of  the  proceeds  of  the  sale  of  the 
firm  propert}'  should  not  be  applied  to  the  satisfaction  of  their  execu- 
tions against  B.  B.  Eshelman,  the  court  decided  that  the  execution 
creditors  of  Benjamin  B.  Eshelman  had  a  legal  right  to  his  share  of  and 
interest  in  the  partnership  effects  of  the  firm  of  Howry  &  Eshelman,  as 


§  3.]        NOT   DEVESTED    BY   SALE    OF   A   PARTNER'S   INTEREST.  219 

it  stood  on  the  11th  August,  1825,  when  the  executions  were  levied; 
and  directed  this  issue,  to  try  what  that  share  or  interest  was. 

The  plaintiffs  claimed  a  moiety  or  half  part  of  the  four  thousand 
seven  hundred  and  seventy-nine  dollars  as  their  share, 

The  plaintiffs,  having  closed  their  evidence,  the  defendants,  in  support 
of  the  issue  taken  in  the  cause,  offered  to  prove  that  the  firm  of  Howry 
&  Eshelman  was  entirely  insolvent  on  the  11th  August,  1825.  That 
the  debts  and  claims  against  the  said  firm  existing  on  the  said  11th 
August,  1825,  which  were  then  unpaid,  greatly  exceeded  the  whole 
property  of  the  said  firm.  That  Benjamin  B.  Eshelman,  on  the  said 
day,  had  no  interest  whatever  in  the  said  firm,  and  that  Daniel  Howry, 
the  other  partner,  is  greatly  interested  in  the  application  of  the  funds 
of  the  said  firm,  to  the  payment  of  the  debts  of  the  said  firm,  as  he  is 
answerable,  individually  and  as  a  partner  for  the  whole  of  the  said 
debts.  Which  offer  being  objected  to,  the  court  overruled  the  same, 
and  delivered  the  following  opinion,  to  wit:  "  I  am  satisfied  that  the 
authorities  cited  settle  the  law  as  it  applies  to  the  cases  decided,  that 
is  to  sa}-,  to  cases  where  there  are  separate  executions  against  one 
partner  levied  on  the  partnership  effects.  But  this  is  a  case  where  the 
whole  partnership  effects  are  swept  away  by  separate  executions  against 
each  partner,  where  the  creditors  at  large  have  no  lien.  I  must  say 
that  the  principal  object  in  directing  this  issue  was,  as  it  was  a  case  of 
great  importance,  to  give  an  opportunity  of  completely  considering  and 
reviewing  the  law  on  the  subject.  But  I  am  very  clear  that  Benjamin 
B.  Eshelman's  interest,  or  want  of  interest,  cannot  be  shown  by  evi- 
dence of  debts  due  from  the  firm,  and  that  the  testimony  offered  relative 
to  the  insolvency  of  the  firm,  and  the  interest  of  Daniel  Howry  in  the 
application  of  the  funds  of  the  firm  to  the  payment  of  its  debts,  cannot 
be  admitted." 

To  this  opinion,  overruling  the  evidence  offered,  the  defendants 
excepted. 

Although  the  issue  joined  was  between  the  separate  execution  credi- 
tors of  the  respective  partners,  the  counsel  for  the  defence  appeared 
for  the  joint  creditors  of  the  firm,  to  controvert  the  right  of  the  separate 
creditors  of  Eshelman,  to  be  paid  out  of  the  fund  in  court,  before  the 
joint  creditors  were  satisfied  ;  and  they  alleged  that,  after  the  executions 
of  the  separate  creditors  were  levied,  Ilowiy  &  Eshelman  had  made  an 
assignment  to  trustees  for  the  benefit  of  the  creditors  of  the  firm. 

The  only  question  now  raised  in  this  court,  upon  the  charge  of  the 
court  below  and  the  bill  of  exceptions,  was,  whether  the  separate  execu- 
tion creditors  of  Eshelman  had  a  right  to  be  paid  out  of  the  proceeds 
of  the  sales  of  the  goods  of  the  firm  before  the  joint  creditors  were 
satisfied  out  of  that  fund. 

N~orris,  for  the  joint  creditors. 

Hopkins,  for  the  plaintiffs  in  error. 

The  opinion  of  the  court  was  delivered  by  Gibson,  C.  J.  It  is  set- 
tled by  a  train  of  decisions  in  the  American,  as  well  as  the  British 


220  THE   NATUKE    OF   A   PAKTNERSHIP.  [dlAP.  III. 

courts,  that  the  joint  effects  belong  to  the  firm,  and  not  to  the  partners, 
each  of  whom  is  entitled  only  to  a  share  of  what  may  remain  after  pay- 
ment of  the  partnership  debts ;  and,  consequently,  that  no  greater 
interest  can  be  derived  from  a  voluntary  assignment  of  his  share,  or  a 
sale  of  it  on  execution.  That  a  contract  which  enables  the  parties  to 
keep  a  class  of  their  creditors  at  ba}-,  and  yet  retain  the  indicia  of 
ownership,  should  not  have  been  deemed  within  the  statutes  of  Elizabeth, 
is  attributable  exclusively  to  the  disposition  universally  manifested  by 
courts  of  justice  to  encourage  trade.  But,  such  as  it  is,  has  the  con- 
tract of  partnership  been  established  ;  and  the  principle  which  enables 
the  partners  to  pledge  to  each  other  the  joint  effects  as  a  fund  for  pay- 
ment of  the  joint  debts  has  introduced  a  preference  in  favor  of  the 
joint  creditors,  founded  on  no  merits  of  their  own,  but  on  the  equity 
which  springs  from  the  nature  of  the  contract  between  the  partners 
themselves.  The  author  of  the  Commentaries  on  American  Law,  vol. 
iii.,  page  38,  attributes  this  preference  to  an  inherent  equity  in  the 
joint  creditors  themselves,  arising  from  a  supposed  acquisition  of  the 
partnership  effects  from  their  means.  The  opinions  of  Chancellor  Kent 
are  so  justly  entitled  to  deference  that  no  prudent  judge  will  differ  from 
him  without  hesitation  ;  yet  I  cannot  but  adhere  to  the  opinion  I  ex- 
pressed in  Bell  v.  Newman,  5  S.  &  R.  92,  that  in  cases  of  insolvency 
or  bankruptcy,  in  which  alone  the  question  of  priority  can  be  material, 
the  joint  effects  consist  of  the  wreck  of  the  capital  originally  embarked. 
Under  a  joint  commission,  by  which  the  effects  pass  to  the  assignees, 
while  the  partners  are  personally  discharged,  I  admit  that  the  prefer- 
ence of  the  joint  creditors  has  no  other  foundation,  if  it  has  any  at  all, 
than  this  supposed  inherent  equit}7 ;  and  the  best  elementary  writer  on 
the  subject  so  disposes  of  the  difficult}'.  Gow  on  Partnership,  341,  342. 
But  in  the  case  of  a  separate  commission,  Lord  Eldon  expressly  puts  it 
on  the  particular  equit}'  of  the  partners  themselves  :  Ex  parte  Ruffin,  6 
Ves.  119  ;  and  in  the  case  of  an  execution,  Chief  Baron  M'Donald  does 
the  same.  Taylor  v.  Fields,  4  Ves.  396.  To  secure  the  firm  from  the 
extravagance  of  its  members,  by  preventing  the  capital  from  being  with- 
drawn from  the  purposes  of  the  partnership,  the  stock  is  pledged  for  the 
burden  which,  from  the  nature  of  the  connection,  is  to  be  borne  by  all ; 
but,  in  moulding  the  law  of  partnership  to  its  present  form,  the  credit 
gained  b}r  giving  the  joint  creditors  a  preference  was,  if  an  object  at  all, 
a  very  remote  one.  Accordingly,  with  the  single  exception  of  a  joint 
commission,  we  find  that  wherever  the  partners  are  not  individually 
involved,  the  joint  creditors  have  no  preference  whatever;  as  in  the 
instance  of  a  bona  fide  assignment  of  the  effects  to  one  of  the  partners, 
after  the  partnership  has  been  dissolved. 

In  consequence  of  the  rule  as  I  have  stated  it,  a  separate  execution 
creditor  sells,  not  the  chattels  of  the  partnership,  but  the  interest  of  the 
partner,  incumbered  with  the  joint  debts  ;  and  the  joint  creditors,  there- 
fore, have  no  claim  to  the  proceeds.  To  allow  them  the  proceeds,  and 
recourse  to  the  property  in  the  hands  of  the  purchaser,  would  subject 


§  3.]        NOT   DEVESTED    BY    SALE   OF   A    PARTNER'S    INTEREST.  221 

it  to  a  double  satisfaction.  Neither  ran  they  take  the  proceeds  or  the 
property  at  their  election.  They  can  interfere  at  all  only  on  the  ground 
of  a  preference,  which  has  regard  only  to  the  partnership  effects  ;  and 
these  have  not  been  sold,  but  only  the  subordinate  interest  of  the  part- 
ner, which  was,  strictly  speaking,  his  separate  estate.  Their  recourse, 
therefore,  is  necessarily  to  the  property  in  the  hands  of  the  purchaser. 
Now,  had  the  sheriff  sold  the  interest  of  but  one  of  the  partners,  the 
execution  creditor  would  have  clearly  been  entitled  to  the  proceeds. 
But  although  he  sold  the  whole  stock  at  one  operation,  on  separate 
executions  against  both,  there  was,  in  contemplation  of  law,  a  separate 
sale  of  the  interest  of  each.  What,  then,  would  have  been  the  effect  had 
these  sales  been  made  consecutively?  The  first,  in  the  order  of  time, 
would  have  passed  the  interest  of  the  partner,  subject  to  the  equity  of 
his  co-partner,  and  the  execution  creditor  would  have  been  entitled  to 
the  price.  But  this  equity,  together  with  the  remaining  interest  of  the 
other  partner,  would  have  passed  by  the  succeeding  sale  to  the  same 
purchaser;  the  execution  creditor,  in  that  instance,  also  taking  the 
proceeds.  Can  it  make  a  difference,  then,  that  instead  of  being  con- 
secutive these  two  sales  were  simultaneous?  A  curious  question  might 
arise  whether  separate  purchasers  of  the  shares  respectively  would 
stand  in  the  relation  of  partners,  so  as  to  enable  the  joint  creditors  to 
follow  the  goods.  It  seems  to  me  they  would  not,  because  not  per- 
sonally involved  in  payment  of  the  debts.  Here,  however,  where  the 
shares  of  the  partners  are  united  in  the  same  purchaser,  every  sem- 
blance of  partnership  equities  is  at  an  end.  As  regards  the  goods  in 
the  hands  of  the  purchasers,  this  is  conceded  ;  but  the  joint  creditors 
insist  that  the  proceeds  are  to  be  substituted  for  the  goods,  and  sub- 
jected to  the  same  equities.  That  might  be  done  if  the  proceeds  be- 
longed to  the  partners  ;  but  it  is  not  eas}*  to  imagine  how  the}'  are  to 
be  treated  as  the  owners  of  money  raised  by  a  sale  on  executions  against 
them.  For  what  purpose  should  the  ownership  of  it  be  vested  in  them, 
even  for  an  instant?  Not  to  give  the  joint  creditors  a  preference,  for 
that  would  make  the  rights  of  the  partners  depend  on  the  claims  of  the 
joint  creditors,  who,  on  the  contrary,  can  claim  nothing  but  by  virtue  of 
the  lien,  where  there  is  one,  of  the  partners.  To  say  that  the  partners 
have  such  a  lien  because  the  joint  creditors  have  an  equity,  and  that 
the  joint  creditors  have  an  equity  because  the  partners  have  a  lien, 
would  be  to  argue  in  a  circle.  Here  the  partners  cannot  be  prejudiced 
in  respect  of  their  claims  on  each  other,  the  advantage  to  be  gained 
from  an  application  of  the  joint  effects  to  their  separate  debts  being 
mutual  and  equal.  The  consequences  are  precisely  the  same  as  if  the 
effects  had  been  sold  on  an  execution  against  both.  We  are,  therefore, 
of  opinion  that  the  joint  creditors  cannot  interpose  ;  and,  consequently, 
that  the  rejection  of  the  evidence,  as  well  as  the  direction  to  the  jury, 
was  substantially  right. 

I   have   considered  the    question  on   principles    applicable  to  it,   in 
analogy  to  well-settled  parts  of  the  law  of  partnership,  rather  than  on 


222  THE    NATUKE    OF   A    PARTNERSHIP.  [CHAP.  III. 

authority  bearing  directly  on  the  point.  Rut  since  this  opinion  was 
drawn,  my  Brother  Huston  has  directed  my  attention  to  the  case  of 
Brinkerhotf  v.  Marvin,  5  Johns.  Ch.  320,  which  is  direct  to  the  point; 
so  that,  independent  of  analogies,  we  have  an  authority  on  which  we 
might  safely  rule  the  cause.  But  both  principle  and  authority  are  ad- 
verse to  the  preference  claimed,  and  the  issue,  therefore,  was  correctly 
found  for  the  plaintiff. 

Huston,  J.,  dissented. 

Rogers,  J.,  was  sitting  at  nisi  prius,  and  took  no  part  in  the 
judgment.  Judgment  affirmed. 


MENAGH  v.    WHITWELL  et  at.. 
52  N.  Y.  146.     1873. 

This  action  was  for  conversion.  The  property  consisted  of  machin- 
ery, utensils,  lumber,  and  other  chattels,  formerly  belonging  to  the 
firm  of  J.  C.  Smith  &  Co.,  and  appertaining  to  a  yeast  factory  operated 
by  that  firm. 

From  the  17th  of  August  to  the  22d  day  of  December,  1866,  the 
firm  consisted  of  John  C.  Smith,  Hollister  E.  Goodwin,  John  Wride, 
Marietta  Huntington,  and  William  B.  Rubert,  each  being  interested  to 
the  extent  of  one-fifth. 

The  firm,  as  thus  constituted,  contracted  debts  to  the  Geneva  Na- 
tional Bank,  upon  which  judgments  were  afterward  recovered  against 
the  above-named  parties;  viz.,  one  judgment  for  $1,403.83,  and  one 
for  $237.53,  both  recovered  May  24,  1867.  The  larger  judgment 
embraced  claims  to  the  amount  of  $330,  which  accrued  after  the 
withdrawal  of  John  Wride  from  the  firm. 

Executions  were  issued  on  these  judgments  on  the  25th  of  Ma}',  1867, 
and  placed  in  the  hands  of  the  defendant  Ringer,  who  was  deputy 
sheriff  of  Ontario  County  ;  and,  by  virtue  of  those  executions,  he  levied 
upon  the  property  on  the  19th  of  July,  1867,  and  sold  it  on  the  29th  of 
Jury,  1867.  The  defendant  Whitwell  was  sheriff  ;  and  this  action  was 
brought  against  him  and  his  deputy  for  that  lev}-  and  sale.  The  plain- 
tiff recovered  four-fifths  of  the  value  of  the  property. 

The  plaintiff  makes  title  to  this  four-fifths  as  follows  :  — 

On  the  22d  of  December,  1866,  John  Wride  assigned  all  his  interest 
in  the  property  and  business  of  the  firm  to  John  C.  Smith,  who  agreed 
to  pay  the  firm  debts  ;  and,  on  the  4th  of  February,  1867,  Marietta 
Huntington  assigned  all  her  interest  in  the  property  of  the  firm  to  said 
John  C.  Smith,  who  assumed  her  place  in  the  firm.  After  these  trans- 
fers the  same  business  was  carried  on  by  the  remaining  partners,  under 
the  same  firm  name.  The  referee  finds  that  both  of  these  transfers 
were  made  with  the  consent  of  all  the  other  members  of  the  firm,  and 
in  ^ood  faith,  without  intent  to  defraud  the  creditors  of  the  firm. 


S  3.]        NOT   DEVESTED   BY   SALE    OF   A   PARTNER'S   INTEREST.  223 

On  the  28th  of  February,  1867,  the  firm  then  consisting  of  John  C. 
Smith,  William  B.  Rubert,  and  Hollister  E.  Goodwin,  and  Smith's  in- 
terest being  then  three-fifths,  he  gave  to  the  plaintiff  a  chattel  mortgage 
upon  his  undivided  three-fifths  interest  in  the  yeast  factory,  property, 
accounts,  and  other  choses  in  action  of  the  firm,  to  secure  his  individual 
debt  to  the  plaintiff  of  82,400,  payable  in  instalments,  in  two,  five,  and 
seven  months,  with  power  to  take  possession  and  sell,  in  case  of  de- 
fault, or  whenever  she  should  deem  herself  unsafe,  before  default.  The 
referee  finds  that  this  amount  was  justly  due  to  the  plaintiff  for  money 
loaned  by  her  to  Smith,  which  he  had  used  for  the  firm,  and  for  which 
it  was  indebted  to  him ;  and  that  the  mortgage  was  given  in  good 
faith,  with  the  consent  of  all  the  persons  composing  the  firm,  and 
without  intent  to  defraud  creditors.  There  is  no  express  finding  in 
respect  to  the  solvency  of  the  firm  at  the  time  of  the  giving  of  this 
mortgage. 

On  the  2d  of  February,  1867,  William  B.  Rubert  had  given  a  like 
chattel  mortgage  on  his  one-fifth  interest  to  Samuel  E.  Rubert,  to 
secure  an  individual  debt  of  $500,  payable  in  five  days.  The  referee 
finds  that  this  was  a  just  debt  for  money  loaned,  and  that  the  mort- 
gage was  executed  in  good  faith  to  secure  the  debt,  and  without  any 
fraudulent  intent.  It  does  not  appear  that  an}T  of  the  other  partners 
consented  to  this  mortgage. 

On  the  10th  of  Ma}-,  1867,  the  plaintiff  and  Samuel  E.  Rubert  took 
possession  of  the  property  mentioned  in  their  respective  mortgages  ; 
and,  after  advertisement,  it  was  sold  on  the  18th  of  May,  1867,  the 
three-fifths  interest  of  John  C.  Smith  being  purchased  by  the  plaintiff 
for  SI, 000,  and  the  one-fifth  interest  of  William  B.  Rubert  being  bought 
in  by  Samuel  E.  Rubert,  for  an  amount  less  than  his  mortgage. 

On  the  same  day,  John  C.  Smith  sold  and  delivered  to  the  plaintiff 
all  his  interest  in  a  quantity  of  lumber,  boxes,  and  other  material  then 
on  the  premises,  and  belonging  to  the  firm,  for  $200,  which  was  applied 
in  part  payment  of  the  plaintiffs  mortgage.  The  referee  finds  that  this 
sale  was  in  good  faith,  and  without  airy  fraudulent  intent.  This  lumber, 
etc.,  was  levied  upon  and  sold  b}-  the  defendants,  and  is  embraced  in  the 
plaintiff's  recovery. 

On  the  same  day  on  which  the  plaintiff  and  Samuel  E.  Rubert  took 
possession  under  their  mortgages, — viz.,  the  10th  of  May,  1867, — 
Hollister  E.  Goodwin,  the  only  remaining  member  of  the  firm,  trans- 
ferred his  undivided  one-fifth  interest  in  the  property  and  business  of 
the  firm  to  Mary  B.  Goodwin,  who  still  owns  the  same,  but  never  be- 
came a  member  of  the  firm.  The  referee  has  not  found  that  there  was 
any  consideration  for  this  transfer,  or  what  was  its  object,  or  that  it  was 
made  in  good  faith. 

The  only  findings  in  respect  to  the  solvency  of  the  firm  at  the  times 
of  these  several  transactions  are,  that,  on  the  22d  of  December,  1866, 
when  John  Wride  withdrew  from  the  firm,  transferring  his  interest  to 
John  C.  Smith,  the  firm  was  somewhat  embarrassed,  but  was  not  known 


224  THE  NATURE  OF  A  PARTNERSHIP.       [CHAP.  III. 

or  believed  to  be  insolvent  by  either  Wride  or  Smith ;  and  that,  on  the 
4th  of  February,  1867,  when  Marietta  Huntington  transferred  her  in- 
terest, the  financial  affairs  of  the  firm  were  about  the  same  as  they  were 
on  the  22d  of  December,  1866  ;  that  the  firm  was  largely  indebted,  and 
somewhat  embarrassed  ;  that  the  value  of  its  property  and  assets  de- 
pended in  part  upon  the  continuance  of  its  business  ;  and,  in  case  such 
business  were  continued  and  properly  managed,  the  property  and  assets 
of  the  firm  were  more  than  sufficient  to  pay  its  debts. 

The  referee  further  finds  that,  at  the  time  of  the  seizure  and  levy  by 
the  defendants,  the  property  was  in  the  possession  of  the  plaintiff  and 
Samuel  E.  Rubert,  and  was  of  the  value  of  $2,150;  that  the  plaintiff 
was  the  owner  of  an  undivided  three-fifths  and  Samuel  E.  Rubert  of 
one  undivided  fifth  part  thereof,  and  that  Mary  B.  Goodwin  was  the 
owner  of  the  other  undivided  fifth  part  thereof;  and  that,  on  the  15th 
of  August,  1867,  and  before  the  commencement  of  this  action,  the 
said  Samuel  duly  assigned  to  the  plaintiff  all  his  right  to  the  property 
and  cause  of  action  against  the  defendants  for  the  taking  possession 
thereof. 

As  conclusions  of  law,  he  finds  that,  at  the  time  of  the  levy,  neither 
of  the  defendants  in  the  executions  had  any  leviable  interest  in  the 
property,  but  that  it  belonged  four-fifths  to  the  plaintiff,  and  one-fifth 
to  Mary  B.  Goodwin  ;  that  the  bank  had  no  lien  thereon  ;  and  that  the 
plaintiff  was  entitled  to  recover  four-fifths  of  the  value,  amounting  to 
$1,720,  with  interest  from  the  time  of  the  conversion. 
W.  F.  Cogswell,  for  the  appellants. 
E.  Countryman,  for  the  respondent. 

Rapallo,  J.     The  mortgages  executed  by  John  C.  Smith  and  Wil- 
liam B.  Rubert  appear  to  have  been  regarded  by  the  learned  referee  as 
transferring  an  undivided  four-fifths  of  the  corpus  of  the  partnership 
property  therein  described.     He  has  found,  as  to  the  mortgage  from 
Smith,  that  it  was  executed  and  delivered  with  the  assent  of  the  other 
members  of  the  firm.     This  mortgage,  if  such  be  its  true  construction, 
having  been  given  to  secure  the  individual  debt  of  the  partner,  even  if 
effectual  as  to  the  firm,  by  reason  of  the  concurrence  of  all  the  partners 
giving  it,  would  be  a  fraudulent  misapplication  of  the  partnership  prop- 
erty, and  void,  as  to  the  creditors  of  the  firm,  under  the  principle  of  the 
cases  of  Ransom  v.  Van  Deventer,  41  Barb.  307,  and  Wilson  v.  Robert- 
son, 21  N.  Y.  587,  unless  the  firm  were  solvent  at  the  time  the  mort- 
gage was  given,  and  sufficient  property  would  remain,  over  and  above 
that  devoted  by  that  instrument  to  the  payment  of  the  individual  debt, 
to  pay  the  debts  of  the  firm.     The  Supreme  Court  have  considered  that 
the  findings  of  the  referee  fail  to  disclose  any  insolvency,  but,  on  the 
contrary,  establish  the  solvency  of  the  firm  at  the  time  the  mortgages 
were  given.     We  cannot  concur  in  this  view  of  the  effect  of  the  find- 
ings, but  think  that  the  facts  found  show  that  the  firm  was   insolvent 
when  the  mortgages  were  given ;  and,  if  there  were  any  doubt  upon 
that  point,  they  clearly  establish  that  the  diversion  of  four-fifths  of  its 


S.3.1    NOT  DEVESTED  BY  SALE  OF  A  PARTNER'S  INTEREST.    225 

properties  to  the  individual  debts  of  two  of  the  partners  would  make  it 

insolvent. 

According  to  these  findings,  the  firm  was,  in  February,  1867,  and  had 
been  from  December,  18GG,  largely  indebted  and  embarrassed  ;  and 
the  value  of  its  property,  and  its  consequent  ability  to  pay  its  debts, 
depended  in  part  upon  the  continuance  and  proper  management  of  its 
business.  The  mortgages  were  given  on  the  2d  and  28th  of  February, 
18G7.  If  they  were  intended  to  be  liens  upon  the  corpus  of  the  prop- 
erty, as  they  have  been  treated  by  the  referee,  and  not  merely  liens 
upon  the  surplus  which  should  belong  to  the  partners  respectively,  after 
pavment  of  the  firm  debts,  it  is  evident,  from  the  facts  stated  as  exist- 
ing at  the  time,  as  well  as  from  the  result,  that  their  enforcement  would 
prevent  the  firm  creditors  from  collecting  their  demands  out  of  the  firm 
property,  and  that,  under  the  principle  of  the  cases  cited,  they  were 
fraudulent  and  void  as  to  such  creditors.  If  so,  the  mortgagees,  by 
purchasing  at  the  sale  under  the  mortgages,  acquired  no  valid  title  as 
asainst  such  creditors  ;  and  the  plaintiff  was,  consequently,  not  entitled 
to  recover. 

Assuming,  however,  that  the  mortgages  were  intended  to  pass  merely 
the  individual  interests  of  the  mortgaging  partners  in  the  common 
stock,  and  for  that  reason  were  not  fraudulent  as  to  the  firm  creditors, 
then  it  becomes  necessary  to  consider  their  legal  effect  upon  the  rights 
of  creditors  of  the  firm.  It  is  clear  that  the  remaining  partner  was 
entitled  to  the  control  of  the  firm  property,  so  long  as  he  retained  his 
interest,  and  to  apply  it  to  the  firm  debts,  and  that  the  mortgagees 
acquired  only  a  right  to  the  surplus,  if  any,  which  would  be  found  to 
belong  to  the  mortgagors  on  the  settlement  of  the  accounts. 

And,  so  long  as  any  of  the  partners  had  this  dominion  over  the  firm 
property,  it  can  hardly  be  questioned  that  it  was  subject  to  levy  on 
execution  at  the  suit  of  a  firm  creditor.  Lovejoy  v.  Bowers,  11  N.  H. 
404  ;  Coover's  Appeal,  29  Pa.  St.  9  ;  Pierce  v.  Jackson,  6  Mass.  243. 

But  the  point  upon  which  the  judgment  was  sustained  in  the  Supreme 
Court,  at  General  Term,  was,  that  after  the  execution  of  the  mortgages 
H.  E.  Goodwin,  the  only  remaining  partner,  made  a  transfer  to  a  third 
party  of  his  individual  interest  in  the  partnership  properties,  and  on 
this  ground  it  was  held  that  when  the  execution  was  levied  none  of  the 
defendants  in  the  execution  had  any  leviable  interest  in  the  property 
levied  upon  ;  and  it  was  further  held  that  the  plaintiff,  who  had  pur- 
chased the  interest  of  S.  E.  Hubert  under  his  mortgage,  was  entitled, 
by  virtue  of  the  two  mortgages  and  of  the  purchase  at  the  sale  under 
them,  to  recover  the  value  of  four-fifths  of  the  corpus  of  the  partnership 
property  levied  upon  by  the  defendants,  without  regard  to  the  partner- 
ship debts. 

This  position  is  not  without  authorit}*  in  its  support.  It  is  founded 
upon  the  theory  that  the  separate  transfers  of  the  individual  interests 
of  all  the  partners  devested  the  title  of  the  firm  ;  that  firm  creditors 
have  no  lien  upon  the  partnership  effects,  and  no  direct  right  to  compel 

15 


226  THE  NATURE  OF  A  PARTNERSHIP.       [CHAP.  III. 

their  application  to  firm  debts  in  preference  to  individual  debts  ;  that 
the  right  to  compel  this  application  is  an  equity  vested  in  the  partners 
themselves,  and  exists  only  as  between  each  other ;  that,  so  lono-  as 
this  equit}*  exists  in  any  of  the  partners,  the  creditors  have  an  equity 
to  compel  its  enforcement  between  the  partners,  and  may  by  this  means 
obtain  the  application  of  the  partnership  properties  to  their  demands, 
in  preference  to  the  individual  debts  or  separate  dispositions  of  any  of 
the  partners;  in  other  words,  "that  the  equities  of  the  creditors  can 
only  be  worked  out  through  the  equities  of  the  partners."  From  these 
premises  the  conclusions  have  been  drawn  that,  if  such  equities  are 
waived  or  released  by  the  partners  themselves,  the  creditors  lose  them, 
and  that  a  transfer  of  the  individual  interest  of  a  partner  in  the  firm 
propert}'  to  a  third  person  extinguishes  the  equity  of  the  partner,  and 
consequently  that  of  the  creditors,  which  is  dependent  upon  it.  This 
doctrine  has  been  carried  to  the  extent  of  holding  that,  if  the  indi- 
vidual interests  of  each  of  the  members  of  a  firm  are  successively  sold 
under  executions  against  such  members  respectively  for  their  individual 
debts,  the  purchasers  acquire  the  corpus  of  the  property  free  from  the 
co-partnership  debts,  and  the  equities  of  the  partners  and  partnership 
creditors  are  extinguished.     Coover's  Appeal,  29  Pa.  St.  9. 

The  injustice,  and,  it  may  be  said,  the  absurdities,  which  result  from 
such  a  view  lead  to  an  inquiry  into  its  correctness.  A  firm  ma}'  be  per- 
fectly solvent,  though  the  members  are  individually  insolvent ;  yet  in 
such  a  case  the  doctrine  that  the  property  of  the  firm  is  devested,  and 
the  equities  of  the  partners  and  partnership  creditors  are  extinguished, 
by  separate  transfers  of  the  individual  interests  of  all  the  partners, 
might  result,  not  only  in  an  appropriation  of  all  the  properties  of  the 
firm  to  the  payment  of  the  individual  debts,  to  the  entire  exclusion  of 
the  firm  creditors,  but  to  a  most  unjustifiable  sacrifice  and  waste  of  such 
properties.  For  instance,  suppose  a  firm  to  consist  of  three  members, 
each  having  an  equal  interest,  and  to  be  possessed  of  assets  to  the 
amount  of  $300,000,  and  to  owe  debts  to  half  of  that  amount,  the 
interest  of  each  partner,  supposing  their  accounts  between  themselves 
to  be  even,  is  $50,000.  The  members  of  the  firm  are  individually  in- 
debted. One  of  them  sells  his  share,  and  receives  for  it  $50,000,  which 
is  its  actual  value  ;  the  shave  of  another  of  the  partners  is  sold  out 
under  execution  and  brings  its  full  value,  $50,000.  Thus  far  one  part- 
ner remains,  and  he  has  an  equity  to  have  the  firm  debts  paid  ;  and 
those  who  have  sold  out  are  protected  against  those  debts.  The  pur- 
chasers of  the  separate  interests  are  entitled  to  the  surplus  only  ;  the 
joint  creditors  still  have  their  recourse  against  the  partnership  property 
and  the  right  to  levy  on  such  of  it  as  is  subject  to  sale  on  execution ; 
but  before  any  levy,  the  remaining  partner  sells  out  his  individual  in- 
terest, or  it  is  sold  out  on  execution.  According  to  the  doctrine 
applied  in  the  present  case,  and  maintained  in  the  case  of  Coovers 
Appeal,  supra,  the  firm  property  is.  by  this  last  sale,  relieved  from  the 
partnership  debts,  the  two  shares  first  sold  are  at  once  changed  from 


§  3.]        >"0T   DEVESTED    BY    SALE    OF   A    PAKTXKIi's    IXTEEEST.  227 

interests  in  the  surplus  to  shares  in  the  corpus  of  the  property  free  from 
the  debts,  their  value  is  doubled,  and  the  fund  which  should  have  gone 
to  pay  the  joint  debts  is,  without  any  consideration,  appropriated  by 
the  transferees  of  the  individual  interests  of  the  partners. 

Such  is,  in  substance,  the  operation  performed  in  the  present  case. 
Assuming  that  the  mortgages  are  intended  to  convey  only  the  separate 
interests  of  the  mortgagors  (which,  as  has  been  shown,  is  the  only 
theory  upon  which  the}-  can  escape  being  regarded  as  fraudulent),  the 
mortgaged  property  was,  at  the  time  the  mortgages  were  given,  liable 
to  be  taken  for  the  partnership  debts.  The  mortgages  were  but  a  slen- 
der security3  and  their  value  dependent  upon  the  firm  debts  being  paid. 
This  state  of  affairs  continued  so  long  as  Hollister  E.  Goodwin  retained 
his  one-fifth  interest  in  the  firm.  The  firm  property  was  legally  under 
his  dominion  for  the  payment  of  firm  debts  ;  and  the  firm  creditors,  if 
they  then  had  their  execution,  could  have  rightfully  levied  upon  it,  or 
availed  themselves  of  Goodwin's  equity  as  to  an}-  property  which  must 
be  reached  in  that  form.  But,  on  the  10th  of  May,  18G7,  Hollister  E. 
Goodwin  made  a  transfer  of  his  interest  in  the  property  of  the  firm 
to  one  Mary  B.  Goodwin ;  and,  on  the  same  day,  the  plaintiff  and 
Samuel  E.  Rubert  took  possession  under  their  mortgages.  The  referee 
has  not  found  what  was  the  consideration  or  purpose  of  this  assignment 
from  Hollister  E.  to  Mary  B.  Goodwin,  nor  has  he  expressly  found  that 
it  was  made  in  good  faith.  But  the  effect  claimed  for  it  is,  that  Hollis- 
ter E.  Goodwin  being  the  only  remaining  partner,  the  transfer  of  his 
interest  devested  him  of  his  dominion  over  the  partnership  property,  and 
of  his  equity  to  require  the  application  of  the  partnership  property  to 
the  payment  of  its  debts ;  and  that,  as  the  partnership  creditors  could 
only  reach  the  property  through  him,  he,  by  this  transfer  or  surrender 
of  his  rights,  had  cut  off  their  access  to  it,  and  thrown  it  into  the 
hands  of  the  transferees  of  the  individual  partners,  unincumbered  by 
firm  debts. 

"Waiving  an}-  question  as  to  the  bona  fides  of  this  transaction,  the 
referee  not  having  found  it  fraudulent,  and  treating  the  sale  of  Good- 
win's interest  as  if  it  had  been  made  under  an  execution  against  him, 
we  come  back  to  the  question  whether  the  consequences  claimed  do 
legally  follow  from  separate  sales  of  the  individual  interests  of  the 
several  partners. 

It  would  be  a  superfluous  labor  to  trace  the  history  of  the  changes 
which  have  from  time  to  time  taken  place  in  the  views  of  the  courts 
respecting  the  nature  of  the  interests  of  individual  partners  in  the  com- 
mon stock  of  a  firm,  and  the  respective  rights  of  separate  and  joint 
creditors;  but  it  is  sufficient  to  observe  that  they  have  resulted  in  a 
general  recognition  of  the  doctrine  that,  as  between  a  firm  and  its  cred- 
itors, the  property  is  vested  in  the  firm,  and  that  no  individual  partner 
has  an  exclusive  right  to  any  part  of  the  joint  stock  until  the  firm  debts 
are  paid,  and  a  balance  of  account  is  struck  between  him  and  his  CO' 
partners,  and  the  amount  of  his  interest  accurately  ascertained. 


228  THE    NATURE    OF   A    PARTNERSHIP.  [CHAP.  III. 

The  corpus  of  the  effects  is  joint  property,  and  neither  partner 
separately  has  anything  in  that  corpics  ;  but  the  interest  of  each  is  only 
his  share  of  what  remains  after  the  partnership  debts  are  paid,  and 
accounts  are  taken.  "West  v.  Skip,  1  Ves.  239  ;  Fox  v.  Hanbury, 
Cowp.  445  ;  Taylor  v.  Fields,  4  Ves.  396  ;  15  Ves.  559,  note ;  Pierce 
v.  Jackson,  6  Mass.  243  ;  Doner  v.  Stauffer,  1  P.  &  W.  198 ;  2  Kent, 
Corn.  (11th  ed.)  78,  note ;  Collyer  on  Partn.  (3d  Am.  ed.  Perkins),  notes 
to  §  822,  pp.  704  to  710  ;  Story  on  Partn.,  notes  to  §§  261,  262,  263; 
Crane  v.  French,  1  Wend.  311 ;  Witter  v.  Richards,  10  Conn.  27. 

Partnership  effects  cannot  be  taken  by  attachment  or  sold  on  execu- 
tion to  satisfy  a  creditor  of  one  of  the  partners,  except  to  the  extent 
of  the  interest  of  such  separate  partner  in  the  effects,  subject  to  the 
payment  of  the  firm  debts  and  settlement  of  all  accounts.  3  Kent, 
Com.  76,  11th  ed. 

Purchasers  of  the  share  of  an  individual  partner  can  only  take  his 
interest.  That  interest,  and  not  a  share  of  the  partnership  effects,  is 
sold  ;  and  it  consists  merely  of  the  share  of  the  surplus  which  shall  re- 
main after  the  payment  of  the  debts  and  settlement  of  the  accounts  of 
the  firm.     3  Kent,  Com.  78,  note  b,  11th  ed. 

No  more  property  can  be  carried  out  of  the  firm  by  the  assignee  of 
one  partner  than  the  partner  himself  could  extract  after  all  the  accounts 
are  taken.     1  Ves.  241,  Am.  ed.  note  ;  15  Ves.  557. 

No  person  deriving  under  a  partner  can  be  in  a  better  condition  than 
the  partner  himself.     Fox  v.  Hanbury,  Cowp.  445. 

A  partner  has  no  right,  hy  an  assignment  of  his  interest,  to  take  from 
the  creditors  or  other  partners  the  right  to  have  their  claims  against  the 
partnership  satisfied  out  of  its  property.  A  mortgage  made  b}T  one 
partner  of  his  undivided  interest  cannot  avail  against  the  creditors  of 
the  partnership  who  attach  the  partnership  property.  Lovejoy  v.  Bowers, 
11  N.  H.  404. 

These  principles  have  been  enunciated  in  a  great  number  of  cases 
where  some  one,  at  least,  of  the  partners  retained  his  equity  to  have  the 
firm  debts  paid ;  and  the  rights  of  the  creditors  to  assets  or  proceeds, 
which  have  come  under  the  control  of  a  court  of  equty,  have  been 
worked  out  through  the  equty  of  that  partner.  But  I  find  no  case  in 
which  the  consequences  of  transfers  of  the  separate  interests  of  all  the 
partners  to  outside  parties  has  been  considered,  except  the  case  of 
Doner  v.  Stauffer,  1  Pa.  (Penrose  &  Watts),  198,  and  Coover's  Appeal, 
29  Pa.  St.  9,  before  referred  to.  In  neither  of  these  cases  is  the  point 
adjudicated,  for  in  both  cases  the  joint  creditors  intervened  before  the 
sale  of  the  interest  of  the  last  remaining  partner,  and  their  right  to 
priori t}7  was  sustained,  though  the  opinion  of  the  court  was  expressed 
as  to  what  the  result  would  have  been  if  all  the  individual  interests  had 
been  first  sold. 

There  is  another  class  of  cases,  in  which  the  partnership  effects  have 
been  held  to  be  liberated  from  liability  to  be  applied  to  partnership 
debts  in  preference  to  the  separate  debts  of  one  partner  ;  that  is,  where 


§  3.]       NOT   DEVESTED   BY   SALE   OF   A   PARTNER'S   INTEREST.  229 

a  bona  fide  sale  has  been  made  by  a  retiring  partner  in  a  solvent  firm  of 
two  members  to  his  co-partner,  the  latter  assuming  the  debts.  In  such 
a  case,  it  is  settled  that  the  property  formerly  of  the  partnership  be- 
comes the  separate  property  of  the  purchasing  partner,  and  that  the 
partnership  creditors  are  not  entitled  to  any  preference  as  against  his 
individual  creditors,  in  case  of  his  subsequent  insolvency.  Ex  parte 
Ruffin,  6  Ves.  119  ;  Dimon  v.  Hazard,  32  N.  Y.  Go.  But,  in  those 
cases,  the  joint  property  was  converted  into  separate  property  by  the 
joint  act  of  all  the  members  of  the  firm.  They  had  power  to  dispose 
of  the  coipus  of  the  joint  property ;  and  the  exercise  of  that  power, 
when  free  from  fraud,  devested  the  title  of  the  firm  as  effectually  as  if 
they  had  united  in  a  sale  to  a  stranger.  It  remained  subject  to  execu- 
tion for  firm  debts  so  long  as  it  continued  in  the  hands  of  the  purchas- 
ing partner.  It  is  conceded  that  the  creditors  have  no  lien  which 
would  affect  the  title  of  a  purchaser  from  the  firm.  But  the  question 
now  is,  What  is  the  effect  upon  the  title  of  the  firm,  as  between  it 
and  its  creditors,  of  transfers  by  the  partners  severally  of  their 
.respective  interests  to  third  person?  Where  the  property  remains 
in  specie,  and  no  act  has  been  done  by  the  firm  to  devest  its  title, 
but  the  partners  have  made  separate  transfers  of  their  respective 
individual  interests  to  different  persons,  is  it  still  to  be  regarded, 
as  to  firm  creditors,  as  firm  property,  or  has  it  become  the  absolute 
property  of  the  several  transferees  of  the  interests  of  the  individual 
partners? 

It  has  been  shown  that  no  share  in  the  corpus  of  the  property  passed 
by  either  of  these  transfers  separately,  but  niereby  an  interest  in  the 
surplus,  and  wdiich  should  be  ascertained  on  an  accounting  after  pay- 
ment of  the  firm  debts.  But  it  is  claimed  that,  when  all  the  partners 
have  assigned,  their  interest  in  the  propert}*  is  devested,  and  their  equity 
is  destroyed,  and  therefore  the  property  is  released  from  the  debts,  and 
what  was,  at  the  time  of  the  assignment,  a  share  of  a  contingent  surplus, 
has  been  converted  into  a  share  of  the  corpus  of  the  propert}\  Is  this 
position  sound  ?  When  a  partner  sells  his  interest  in  a  firm  to  a  person 
other  than  his  co-partner,  or  it  is  sold  on  execution  against  him,  does  he 
thereby  lose  all  equity  to  have  the  firm  debts  paid  out  of  the  assets  ? 

When  he  sells  to  his  co-partner,  he  relies  upon  his  assumption  of  the 
partnership  debts  ;  and,  unless  he  stipulates  for  an  application  of  the 
assets  to  that  purpose,  he  parts  with  all  lien  upon  them.  But  when  he 
sells  to  a  stranger  not  liable  for  the  debts,  or  his  interest  is  sold  on 
execution,  is  not  the  right  to  have  the  debts  paid  out  of  the  property  a 
right  of  indcjiintty  personal  to  tumself,  and  which  does  nqt_p_ass  by  the 
.sale  ?  Could  it  be  tolerated  that  the  interests  of  a  partner  shouldjbe^ 
sol7rundeT~c^rrji?ufTonjigainst  hiimon  which  sale  only  the  value  of  his 
interest  Th  th<Tsurphis  could  be  realized,  and  that  the  "purchaser  should 
be  allowed  to  takej,jie  corpwsoi'  the  property,  and  leave  him  liable  for 


the_debts?     TTthe  legal  effect  of  the  transfer  were  set  forth  in  the  in- 
strument, ft  would  be  seen  that  all  the  purchaser  acquired  was  a  right 


230  THE    NATURE    OF   A   PARTNERSHIP.  [CHAP.  III. 

to  an  account,  and  to  the  partner's  share  in  the  surplus,  after  payment 
of  the  debts,  when  ascertained,  and  that  he  had  no  right  to  that  pqrt  of 
the  property  which  was  required  for  the  payment  of  debts  ;  that  the 
sale  was  subject  to  the  debts.  3  Kent,  Com.  76-78.  The  partner 
whose  share  was  sold  would  manifestly  have  an  interest  in  the  protec- 
tion and  appropriation  of  that  part  of  the  property  in  discharge  of  his 
own  liability  to  the  firm  creditors. 

I  do  not  see  how  this  right  can  be  affected  by  the  question  whether 
the  separate  interests  of  all  or  only  one  of  the  partners  is  thus  sold. 
Each  of  the  purchasers  would  acquire  an  interest  merely  in  the  surplus, 
and  each  partner  whose  interest  was  sold  would  have  the  right  to  in- 
demnity against  the  firm  debts  by  the  application  to  such  debts  of  so 
much  of  the  property  as  might  be  necessary  for  the  purpose.  These 
debts  must  have  been  taken  into  consideration  in  fixing  the  price  of  the 
interest  sold,  and  consequently  allowed  to  the  purchaser ;  and  the  part- 
nership assets  are  the  primary  fund  for  their  payment.  The  case  differs 
materially  from  a  sale  by  a  retiring  co-partner  to  his  co-partner,  who  is 
personally  liable  for  the  debts  directly  to  the  creditors  ;  but  even  such 
a  sale  is  valid  only  when  there  is  no  insolvency  at  the  time.  To  sell  to 
an  insolvent  partner  would  be  a  clear  fraud.  How  much  more  clearly 
apparent  would  be  the  injury  to  creditors  bjTa  sale  to  a  person  not  liable 
for  the  debts,  if  such  sale  had  the  effect  to  relieve  the  property  from 
them. 

It  can  hardly  be  necessary,  where  the  firm  property  remains  in  specie, 
and  is  tangible  and  capable  of  being  levied  upon,  to  resort  to  the  equi- 
ties of  the  partners,  in  case  there  has  been  no  transfer  by  the  firm,  and 
the  only  adverse  claimants  are  assignees  of  the  individual  interests  of 
the  several  partners  for  their  separate  debts.    The  right  of  the  firm  credi- 
tor to  levy  on  property  thus  situated  can  be  sustained  on  two  grounds. 
If  the  effect  of  any  of  these  transfers  is  to  devest  the  title  of  the  firm, 
then,  if  effected  by  the  acts  of  a  partner,  they  are  clearly  fraudulent 
and  void  as  to  firm  creditors,  as  is  shown  in  the  cases  of  Ransom  v. 
Van  Deventer,  41  Barb.  307,  and  Wilson  v.  Robertson,  21  N.  Y.  587. 
An  appropriation  to  the  individual  debt  of  one  partner  of  any  part  of 
the  firm  property,  even  with  the  assent  of  his  co-partners,  is  illegal  and 
void,  provided  the  firm  is  not  left  with  sufficient  to  pay  its  debts.    How 
absurd  it  would  be  to  hold  that  all  of  the  partners,  by  making  separate 
assignments  of  their  respective  shares  in  the  firm  property  to  their  in- 
dividual creditors,  could  effectually  devest  the  firm  of  all  its  property, 
and  apply  it  to  their  individual  debts,  leaving  nothing  for  the  partner- 
ship creditors.     But  the  simple  solution  of  the  question  is  to  hold  that 
the  title  of  the  firm,  as  between  it  and  its  creditors,  to  the  corpus  of 
the  property,  or  at  least  to  so  much  of  it  as  is  necessary  for  the  debts,  is 
not  devested  by  these  separate  transfers  to  strangers. 

As  is  stated  by  Professor  Parsons,  in  his  work  on  Partnership  (c.  10, 
§  1,  pages  356  to  362,  2d  ed.),  a  partnership,  though  neither  a  tenancy 
in  common  nor  a  corporation,  has  some  of  the  attributes  of  both.     The 


§  3.]        NOT   DEVESTED    BY   SALE   OF   A   PARTNER'S    INTEREST.  231 

well-established  rule  which  excludes  creditors  of  the  several  partners 
from  the  partnership  property  until  that  has  paid  the  debts  of  the  part- 
nership is  derived  from  the  acknowledgment  that  a  partnership  is  a 
body  by  itself.  In  its  relation  to  its  creditors,  it  is  placed  upon  the 
basis  of  having  its  own  creditors  and  possessing  its  own  property, 
which  it  applies  to  the  payment  of  its  debts;  and.  after  this  work  is 
done,  there  is  a  resolution  of  the  body  into  its  elements. 

Until  some  act  is  done  by  the  firm  to  trausfer  the  joint  interest,  no 
separate  act  of  either  or  all  of  the  partners,  or  proceedings  against 
them  individually  with  reference  to  their  individual  interests,  should  be 
held  to  affect  the  title  of  the  firm  so  as  to  preclude  a  creditor  of  the 
firm,  having  a  judgment  and  execution,  from  levying  upon  the  joint 
property.  To  hold  that  separate  transfers  of  their  individual  shares  by 
the  several  partners  can  convey  a  good  title  to  the  whole  property  free 
from  the  joint  debts  would  be  to  return  to  the  doctrine,  long  since 
exploded,  that  partners  hold  by  moieties  as  tenants  in  common.  In 
the  present  advanced  stage  of  the  law  upon  this  subject,  no  estab- 
lished rule  is  violated  by  holding  that  the  title  of  the  firm,  as  between 
it  and  its  creditors,  cannot  be  devested  by  the  acts  of  the  partners  sev- 
erally, not  in  the  business  of  the  firm,  nor  by  the  separate  creditors  of 
members  of  the  firm  (further  than  such  temporary  interruption  of  the 
possession  as  may  be  necessary  to  enable  the  officers  of  the  law  to 
make  an  effectual  sale  of  the  interest  of  the  debtor  partner).  This 
view  does  not  recognize  any  lien  of  partnership  creditors  upon  the  firm 
property.  The  firm  have  power  to  dispose  of  it,  without  regard  to  the 
creditors,  provided  the  disposition  be  not  fraudulent.  But  the  indi- 
vidual members  or  their  creditors  ought  not  to  have  any  such  power ; 
and  all  transfers  made  by  them  for  individual  purposes  should  be  held 
inoperative  upon  the  corpus  of  the  property,  so  long  as  there  are  firm 
debts  unpaid  for  which  the  property  is  required.  As  against  firm 
creditors,  no  greater  effect  should  be  given  to  such  transfers  when  made 
by  all  the  partners  separately  than  when  made  by  a  portion  of  them  ; 
but  the  property  should  be  deemed  to  continue  in  the  firm  until  its  title 
has  been  devested  by  some  act  of  the  firm. 

My  conclusion  is,  that,  as  between  the  firm  of  J.  C.  Smith  &  Co.  and 
its  creditors,  the  property  levied  upon  by  the  defendants  remained  the 
property  of  the  firm,  and  subject  to  levy  on  execution  against  it,  not- 
withstanding the  transfers  by  the  several  partners  of  their  respective 
individual  interests. 

I  bave  not  adverted  to  the  changes  which  took  place  in  the  firm  by  the 
retirement  of  John  Wride   and   M.  Huntington,  and   the   transfer  by 
them  of  their  interests  to  J.  C.  Smith,  intermediate  the  contracting. 
of  the  debt  to  the  hank  of  Geneva  and  the  levy,  the  effect  of  these/ 
changes  being  fully  considered  in  the  opinion  of  my  learned  associate,/ 
Allen,  J. 

The  judgment  should  be  reversed,  and  a  new  trial  ordered,  with  costs 

to  abide  the  event. 


232  THE   NATURE   OF.  A   PARTNERSHIP.  [CHAP.  III. 

Allen,  J.     I  fully  concur  in  the  legal  conclusions  of  my  Brother 
Rapallo,  and  for  the  reasons  assigned  by  him.  .  .  . 

A  siugle  question  only  will  be  considered  ;  and  that  is,  as  to  the  effect 
of  the  retirement  of  two  of  the  partners,  Wride  and  Huntington,  by  the 
transfer  of  their  interests  to  another  partner,  Smith,  after  the  debts 
were   contracted   with   the   Geneva   National    Bank   and    before  the 
recovery  of  the  judgments  upon  which  the  property  was  seized  "by  the 
defendants.     That  the  withdrawal  of  two  of  the  five  partners,  and  a 
transfer  of  their  interests  to  one  of  the  three  remaining  partners,  was  a 
dissolution  of  the  co-partnership  that  had  theretofore  existed,  is  not  con- 
troverted; that  is,  although  a  firm,  composed  of  a  part  of  the  members 
of  the  old  firm,  continued  the  business  in  the  same  name,  still  it  was  not 
composed  of  all  the  original  members  of  the  firm,  and  therefore  strictly 
the  old  partnership  was  dissolved,  and  superseded  by  the  new  organiza- 
tion.   But  the  dissolution  had  respect  to  the  future,  and  not  to  the  past. 
Past  transactions  and  existing  liabilities,  and  the  relative  rights  and 
obligations  of  the  several  partners,  or  the  rights  of  creditors,  in  respect 
to  past  transactions  and  dealings,  were  not  affected  by  the  mere  act  of 
dissolution  resulting  from  such  withdrawal  of  the  two  and  the  assignment 
of  their  interest  aside  from  any  conventional  arrangement  between  the 
partners,  or  between  them  and  their  creditors,  by  which  their  respective 
and  relative  rights  might  be  changed.    The  partners  all  continued  liable 
in  solido  for  the  debts  due  by  the  firm  ;  and  all  the  joint  property  con- 
tinued liable  for  the  joint  debts,  as  it  was  before. 

Heath,  J.,  says,  in  Wood  v.  Braddick,  1  Taunt.  104  :  "  When  a  part- 
nership is  dissolved,  it  is  not  dissolved  with  regard  to  things  past,  but 
only  with  regard  to  things  future.  With  regard  to  things  past,  the 
partnership  continues,  and  always  must  continue;"  and  Lord  Mans- 
field, C.  J.,  in  the  same  case,  says:  "The  powers  of  partners  with 
respect  to  rights  created  pending  the  partnership  remain  after  the  dis- 
solution ; "  and  see  Parsons  on  Partnership,  386,  396. 

From  the  time  of  the  withdrawal  of  the  two  partners,  their  power  to 
act  for  or  represent  the  continuing  members  of  the  firm  in  new  transac- 
tions ceased  ;  and  perhaps  they  relinquished  their  right  to  contract  or 
deal  with  the  joint  property,  as  they  might  have  done  in  concurrence  with 
the  other  partners,  had  the  partnership  been  closed,  and  the  business 
settled  up,  instead  of  being  continued  with  a  change  in  its  membership. 
It  is  said  also  that  one  partner  selling  his  interest  to  a  co-partner,  who 
assumes  his  share  of  the  partnership  debts,  does  not,  in  the  absence  of  a 
stipulation  to  that  effect,  have  any  lien,  equitable  or  otherwise,  upon  the 
firm  property  for  the  payment  of  the  joint  debts  for  which  he  still  remains 
liable.  Dimon  v.  Hazard,  32  N.  Y.  65.  This  must  be  so  when  new  rights 
have  attached  by  reason  of  such  change  of  interests,  as  where  the  trans- 
fer is  to  a  sole  partner,  who  becomes  thereby  the  individual  owner  of  the 
property,  and  rights  of  individual  creditors  have  accrued,  as  in  Howe  v. 
Lawrence,  9  Cush.  553,  and  Robb  v.  Mudge,  14  Gray,  534,  or  where 
the  new  firm  which  has  resulted  from  the  change  of  interests  have  exer- 


S  3.]       NOT   DEVESTED   BY   SALE   OF   A   PARTNER'S   INTEREST.  233 

cised  the  Jus  disponendi,  which  they  have  over  the  property,  or  there 
are  creditors  of  the  new  firm  who  have  the  quasi  lien  recognized  by  the 
law.  But  I  see  no  reason  why,  so  long  as  the  retiring  partner  remains 
liable  with  the  others  for  the  joint  debts,  and  no  adverse  or  paramount 
rights  or  liens  have  attached  to  the  joint  property,  the  same  equity 
should  not  be  recognized  as  existing  in  him  to  have  the  joint  property 
subjected  to  the  payment  of  the  joint  debts  that  he  would  have  had  as  a 
continuing  partner. 

But  whatever  may  be  the  rights  and  equities  of  "Wride  and  Hunting- 
ton, the  retiring  partners,  the  equities  of  the  continuing  partners,  espe- 
cially those  of  Rubert  and  Goodwin,  were  not  impaired  or  affected  by 
the  transfer  of  interests  by  Wride  and  Huntington  to  Smith,  the  other 
partner.  By  those  transfers  Smith  only  acquired  the  same  interest  in 
the  property  of  the  firm  that  any  other  transferee  would  have  acquired  ; 
that  is,  a  right  as  to  the  two-fifths  thus  purchased,  to  an  account,  and  to 
share  to  that  extent  in  the  surplus  of  the  property  of  the  firm.  The 
fact  that  he  was  a  partner  does  not  change  the  character  or  the  legal 
effect  of  the  transaction.  It  was  an  arrangement  between  three  of  five 
partners  ;  and  they  could  not  dispose  of  the  corpus  of  the  joint  prop- 
erty to  the  prejudice  of  the  other  partners  or  the  creditors  of  the  firm, 
or  destroy  the  joint  interest  which  before  existed.  Smith  took  the 
transfer,  subject  to  the  rights  of  the  other  partners  as  to  the  joint 
property,  and  the  share  or  portion  of  the  retiring  or  withdrawing  mem- 
bers. The  rights  of  an  assignee  or  transferee  of  the  individual  share  or 
interest  of  a  partner  in  the  joint  property  are  well  settled  to  be  but  a 
right  to  an  accounting,  or  to  what  shall  remain  after  the  adjustment  of 
Ihe  partnership  accounts  and  dealings.  Mumford  v.  McKa}',  8  W.  R. 
412;  Nicoll  v.  Mumford,  4  J.  C.  R.  522. 

The  assignee  of  a  partner's  interest  cannot  withdraw  his  share  of  the 
joint  effects.  They  must  remain  in  the  possession  of  the  continuing 
partners,  for  the  purpose  of  winding  up  the  partnership  which  has  been 
dissolved  by  the  assignment.     Horton's  Appeal,  13  Pa.  St.  67. 

Smith  could  no  more  have  withdrawn  the  share  of  "Wride  and  Hunt- 
ington, to  which  he  had  succeeded,  than  he  could  have  withdrawn  his 
own  original  share  in  the  joint  effects  of  the  firm  without  the  consent 
of  his  co-partners. 

Although  the  original  partnership  has  ceased  to  exist,  the  rights  of 
the  partners  have  not  been  impaired.  The  new  firm  acquired  and  had 
the  absolute  power  of  disposal ;  and,  had  the  joint  property  been  trans- 
ferred by  the  joint  act  of  all,  the  creditors  of  the  old  firm  would  have 
lost  their  quasi  lien  or  their  right  to  pursue  this  property,  unless  they 
could  impeach  the  transfer  for  fraud. 

Had  the  firm,  after  the  change  of  interests  therein,  incurred  liabili- 
ties and  contracted  debts,  a  question  would  have  arisen  between  the 
creditors  of  the  old  and  new  firms  ;  and  the  creditors  of  the  new  would 
have  been  preferred.  But  no  such  question  is  in  this  case.  The  prop- 
erty of  the  original  firm,  composed  of  the  five  members,  is  still  joint 


234  THE  NATURE  OF  A  PARTNERSHIP.       [CHAP.  III. 

propertj'  with  respect  to  the  partners  still  retaining  an  interest  in  it,  who 
are  tenants  in  common,  and  the  creditors  of  that  firm  to  whom  all  the 
parties  remain  liable,  and  through  whom  and  whose  equities  and  the 
equities  of  each  of  them  they  can,  in  the  language  of  the  books,  work 
out  their  rights. 

Judge  Story  says  :  "  In  case  of  a  dissolution,  each  partner  holds  the 
joint  property,  clothed  with  a  trust  to  apply  it  to  the  payment  of  the 
joint  debts,  and  subject  thereto  to  be  distributed  among  the  partners, 
according  to  their  respective  shares  therein."  Story  on  Partn.  §  360. 
Here  the  three  partners  composing  the  new  firm,  as  partners  and  ten- 
ants in  common,  held  this  property,  clothed  with  this  trust ;  and  neither 
could  withdraw  any  part  of  it,  nor  do  any  act  to  impair  this  trust.  All 
must  unite,  in  order  to  give  effect  and  validity  to  any  disposal  of  the 
property,  except  in  execution  of  the  trust  or  in  the  ordinary  course  of 
business.  A  transfer  in  paj-ment  or  security  of  an  individual  debt  of 
one  is  not  such  an  act,  and  does  not  impair  the  trust  or  affect  the  rights 
of  the  other  tenants  in  common  or  partners,  or  creditors  having  claims 
to  be  enforced  through  their  equities.  It  is  only  when  the  rights  of 
partners  as  such  with  respect  to  the  joint  property  are  gone  that  the 
quasi  lien  of  creditors  is  destroyed.  While  this  right  of  creditors  is 
spoken  of  as  in  the  nature  of  a  lien,  or  a  quasi  lien,  and  depending  to  a 
great  extent  upon  the  equities  of  partners  inter  se,  it  is  to  be  enforced 
against  the  joint  effects  of  the  partners  by  a  common-law  action  and 
common-law  remedies,  except  where  the  dissolution  is  b}'  the  death  or 
bankruptcy  of  one  of  the  partners.     Story  on  Partn.  §  361. 

The  parties  who  claim  to  have  acquired  severally,  by  transfer  from 
the  individual  partners,  the  respective  shares  of  such  partners,  each 
having  only  the  right  which  the  law  gives  the  assignee  of  the  share  of 
a  single  partner,  if  they  have  in  any  way  obtained  possession  of  the 
property  itself,  must  hold  it  clothed  with  the  trust  which  would  have 
attached  to  it  in  the  possession  of  the  partners,  their  assignors  ;  and, 
as  to  the  corpus  of  the  property,  it  remains  the  joint  property  of  the 
firm,  and  liable  to  be  seized  for  its  debts.  There  has  been  no  distri- 
bution of  the  property  among  the  partners  ;  and  it  has  not  been  trans- 
ferred by  them  as  partners  by  any  joint  act,  or  by  the  act  of  one  in  the 
name  of  all,  and  no  creditors  of  the  later  firm  assert  any  claim  to 
it.  So  long  as  the  property  continues,  the  firm  creditors  may  assert 
their  priority  of  right  to  it  as  against  the  creditors  or  transferees  of  in- 
dividual partners.  Allen  v.  Center  Valley  Co.,  21  Conn.  130  ;  2  Story, 
Eq.  Jur.  §  1253.  It  is  joint  quoad  the  partners  and  the  firm  creditors, 
so  long  as  any  one  of  the  partners  may  insist  upon  the  partnership 
claims  to  it.  Crawshay  v.  Collins,  15  Ves.  237  ;  Peacock  v.  Peacock, 
16  Ves.  57.  Here  neither  the  partners,  nor  any  one  claiming  as  credi- 
tors of  or  under  title  derived  from  the  firm,  assert  any  claim  to  the 
property  adverse  to  the  defendants.  Had  a  stranger  to  the  first  firm 
come  into  the  second,  in  the  place  of  the  retiring  members,  a  different 
question  would  have  arisen.     But  here  the  continuing  members  of  the 


8 


o 


]        NOT    DEVESTED   BY   SALE   OF   A    PARTNER'S   INTEREST.  235 


firm  are  all  liable  for  the  debts  of  the  old  firm,  and  as  successors  of  that 
firm  have  possession  and  ownership  of  its  property,  primarily  charge- 
able with  the  payment  of  its  debts  ;  and  there  is  no  foundation  in  prin- 
ciple for  the  claim  that  each  of  the  partners  can  transfer  his  share, 
subject  only  to  the  claims  that  may  exist  growing  out  of  the  new  rela- 
tions of  the  partners  consequent  on  the  withdrawal  of  the  two  retiring 
members ;  and  this  must  be  established  to  entitle  the  plaintiff  to  hold 
her  judgment.  If  Hubert  and  Goodwin  could  only  assert  a  lien  for  the 
liabilities  of  the  three  as  a  firm,  incurred  after  Smith  acquired  the  addi- 
tional two-fifth  interests  from  Wride  and  Huntington,  then  the  plaintiff 
has  a  «iood  title  to  the  undivided  share  and  portion  of  the  corpus  of  the 
estate  for  which  she  has  been  permitted  to  recover  in  the  court  below ; 
otherwise,  not. 

AVe  are  cited  to  several  cases,  of  which  Ex  parte  Ruffin,  6  Ves.  119,  is 
the  pioneer  as  showing  that,  upon  the  dissolution  of  a  partnership  by  the 
retiring  of  one,  the  creditors  of  the  firm  lose  all  power  to  enforce  the  pay- 
ment of  their  debts  from  the  joint  property.  But  such  is  not  the  effect  of 
the  decisions,  nor  can  such  a  principle  be  deduced  from  them.  They  are 
entirely  consistent  with  the  views  now  taken  of  the  rights  of  the  parties 
to  this  action.  Ex  parte  Ruffin  was  the  case  of  a  dissolution  of  part- 
nership between  two,  one  retiring  and  assigning  the  partnership  prop- 
erty to  the  other,  who  continued  the  trade,  and  became  bankrupt.  It 
was  decided,  and  could  not  well  have  been  decided  otherwise,  that,  by 
the  dissolution  and  transfer,  the  property  became  the  individual  prop- 
erty of  the  bankrupt,  and  liable  to  his  individual  debts  in  priority  to 
the  debts  of  the  former  partnership.  The  retiring  partner  gave  to  the 
bankrupt  the  entire  property,  with  the  absolute  right  of  disposal ;  and 
the  Lord  Chancellor  held  that  joint  debts  could  not  be  proved  against 
the  individual  estate.  The  like  question  presented  in  Dimon  v.  Haz- 
ard, 32  N.  Y.  65;  Horton's  Appeal,  supra;  and  Robb  v.  Mudge,  14 
Gray,  .034:,  received  the  same  solution.  The  same  principle  was  ap- 
plied in  Smith  v.  Howard,  20  How.  Pr.  121,  and  Baker's  Appeal,  21 
Pa.  St.  76. 

The  only  difference  in  the  several  cases'  was  circumstantial,  and  did 
not  call  for  the  application  of  any  other  or  different  rule.  The  de- 
cisions all  stand  upon  the  same  reasons.  In  the  last  two  cases,  the 
retiring  partner  transferred  his  interest  to  several  partners,  who  con- 
tinued the  business;  and  it  was  held  that  the  firm  creditors  had  no 
such  lien  upon  the  property  as  would  prevent  the  disposal  of  the  prop- 
erty by  the  joint  act  of  those  who  had  become  the  owners,  or  deprive.' 
the  creditors  of  the  new  firm  of  a  priority.  Smith  y.  Howard  sustained 
:ui  assignment  by  the  two  partners,  to  whom  the  other  partner  had 
transferred  his  interest,  for  the  benefit  of  creditors,  in  which  a  note  in- 
dorsed by  a  third  person  as  their  security,  and  given  to  the  retiring 
partner  in  payment  for  his  interest,  was  preferred.  In  Baker's  Appeal 
a  like  assignment  by  the  continuing  partners,  preferring  the  debts 
of  the  new  firm,  was  sustained.     These  cases  are  clearly  distinguish 


236  THE  NATURE  OF  A  PARTNERSHIP.       [CHAP.  III. 

able  from  this.  If  the  partners  who  had  acquired  the  joint  right  to 
dispose  of  the  property  had  exercised  it  without  fraud,  and  as  the 
creditors  of  the  first  or  former  firm  had  no  specific  liens,  they  could  not, 
in  the  absence  of  any  fraud,  have  impeached  the  transfer. 

Judge  Gibson,  in  Doner  v.  Stauffer,  supra,  intimates  an  opinion  upon 
a  theoretical  case,  adverse  to  the  views  now  taken.  While  restricting 
the  purchaser  of  the  share  of  a  single  partner  to  what  might  remain 
after  the  paj'ment  of  the  partnership  debts,  he  says  :  "  A  curious  ques- 
tion might  arise  whether  separate  purchasers  of  the  shares  respectively 
would  stand  in  the  relation  of  partners,  so  as  to  enable  the  joint  cred- 
itors to  follow  the  goods,"  and  intimates  an  opinion  in  the  negative ; 
but  the  question  was  not  in  the  case.  To  me  it  seems  illogical,  the 
premises  being  granted,  that  a  sale  by  a  partner,  or  upon  an  execution 
against  him  for  an  individual  debt,  carries  only  a  right  to  what  ma}'  re- 
main after  the  payment  of  the  partnership  debts,  —  thus  affirming  the 
right  of  partnership  creditors  to  a  priority  of  payment  and  a  quasi  lien 
on  the  joint  effects,  — to  declare  that  such  preference  is  destined  and 
right  lost  b}T  distinct,  independent  transfers  of  the  individual  interests 
of  the  several  partners,  and  that  while  each  partner,  or  the  creditor  of 
each  individual  partner,  can  only  have  dominion  or  acquire  a  title  to 
the  surplus  ;  when  each  has  exercised  this  right  or  the  individual  cred- 
itors of  all  have  seized  and  sold  this  right  to  the  surplus,  the  rights  of 
each  ai-e  at  once  enlarged  by  relation,  as  of  the  time  of  the  first  trans- 
fer of  interest  of  any  one  of  the  partners  to  the  destruction  of  the 
acknowledged  rights  of  the  partners  inter  se  and  of  the  joint  creditors. 

In  Brinkerhoff  v.  Marvin,  5  J.  C.  R.  320,  separate  and  successive 
judgments  against  individual  partners  for  a  single  partnership  debt 
were  held  entitled  to  be  paid  from  the  partnership  funds,  —  the  Chan- 
cellor giving  the  same  effect  to  the  two  judgments  as  if  they  had  been 
consolidated  in  a  joint  judgment  against  both  the  partners. 

This  is,  so  far  as  reported  decisions  have  come  under  my  observa- 
tion, a  case  of  the  first  impression  ;  but,  by  the  application  of  well- 
established  principles,  and  carrying  to  their  legitimate  and  logical 
results  the  doctrines  fairly  deducible  from  authoritative  adjudications, 
and  giving  proper  effect  to  the  recognized  rights  and  equities  of  part- 
nership creditors,  as  now  understood,  the  plaintiff  did  not  acquire  a 
valid  title  to  the  partnership  effects,  or  to  any  part  or  undivided  share 
or  portion  thereof,  so  as  to  give  her  a  property  in  the  corpus  of  the 
goods  and  effects  as  against  the  judgment  and  execution  creditors  of 
the  firm. 

The  judgment  should  be  reversed,  and  a  new  trial  granted. 

All  concur  in  both  opinions. 

Folger  and  Andrews,  J  J.,  not  sitting. 

Judgment  reversed. 


§  3.]        NOT   DEVESTED    BY   SALE    OF   A   PARTNER'S   INTEREST.  237 


STAHL  et  al.  v.  OSMERS  et  al. 
49  Pac.  (Or.)  958.    1S97. 

The  object  of  this  suit  is  to  compel  the  vendees  of  partnership  prop- 
erty acquired  from  the  individual  partners  to  account  for  aud  apply  the 
proceeds  thereof  to  the  payment  of  partnership  debts.  On  July  6, 
1893,  the  defendants,  Dan  Osmers  and  Mat  Hughes,  were  partners  in 
the  saloon  business  at  Heppner,  and  were  the  owners  of  a  stock  of 
wines,  liquors,  and  cigars  of  the  alleged  value  of  §800,  and  were  insol- 
vent. On  that  day  the  partnership  property  was  attached  for  the  in- 
dividual debt  of  Osmers  at  the  suit  of  Ruehl,  and  under  an  execution 
on  a  subsequently  recovered  judgment  his  interest  therein  was  sold  to 
the  defendant,  William  Hughes,  for  the  sum  of  8200.  On  the  day  fol- 
lowing the  attachment,  the  other  partner,  Mat  Hughes,  sold  and  trans- 
ferred all  his  interest  in  the  firm  property  to  the  defendant,  John 
HugheSi  for  the  sum  of  8600,  who,  together  with  the  purchaser  at  the 
sheriff's  sale,  -took  possession  of  the  entire  partnership  property,  and 
disposed  of  it  for  their  own  use  and  benefit.  The  plaintiff's,  —  who  are 
creditors  of  the  firm  of  Osmers  &  Hughes,  —  having  reduced  their 
claims  to  judgment,  and  an  execution  having  been  issued  thereon,  and 
returned  nulla  bona,  began  this  suit  on  March  10,  1894,  to  compel  the 
defendants  and  John  Hughes  to  account  for  and  apply  in  payment  of 
their  judgment  the  proceeds  of  the  property  formerly  belonging  to  said 
partnership.  The  decree  of  the  court  below  was  in  favor  of  defend- 
ants, and  plaintiffs  appeal. 

Frank  Kellogg,  for  appellants. 

Rea  cD  Lyons,  for  respondents. 

Bean,  J.  The  complaint  charges  fraud  in  the  sale  and  transfer  by 
the  defendant,  Mat  Hughes,  of  his  interest  in  the  partnership  property 
to  his  co-defendant,  John  Hughes.  But  this  allegation  is  wholly  unsup- 
ported by  evidence,  and  therefore  the  onhy  question  for  determination 
on  this  appeal  is  whether  simple  contract  creditors  of  a  partnership 
have  such  a  lien  upon  the  assets  of  the  firm  as  will  enable  them  to  fol- 
low and  subject  such  assets,  or  the  proceeds  thereof,  to  the  payment  of 
the  firm  debts  after  all  partners  have  parted  with  their  interest  therein. 
Upon  this  question  there  is  some  conflict  in  the  adjudged  cases,  but  the 
great  weight  of  authority  favors  the  doctrine  that  the  firm  creditors 
have  no  lien  in  their  own  right  upon  the  partnership  effects,  and  no 
direct  right  to  compel  their  application  to  firm,  in  preference  to  indi- 
vidual, debts. 

The  right  to  compel  such  an  application  of  partnership  assets  is  gen- 
erally regarded  as  an  equity  the  partners  have  as  between  themselves, 
but,  so  long  as  it  exists  in  any  of  the  partners,  the  creditors  may,  by  a 
sort  of  subrogation  to  the  right  of  the  partner,  compel  its  enforcement, 
and  by  this  means  obtain  an  application  of  partnership  property  to 
their  demands.!  The  right  of  the  firm  creditor  in  this  respect  is,  how- 


238  THE    NATURE    OF    A    PARTNERSHIP.  [CHAP.  IIL 

ever,  a  derivative  one  only,  and  not  held  or  enforced  in  his  own  right ; 
in  other  words,  "  the  equities  of  the  creditors  can  onPy  be  worked  out 
through  the  equities  of  the  partners."  From  these  premises  it  neces- 
sarily follows  that,  unless  a  partner  is  in  condition  to  enforce  such 
right,  the  creditors  cannot  do  so.  The  quasi  lien,  as  it  is  sometimes 
called,  of  the  creditor,  being  at  best  only  the  resultant  of  his  debtor's 
lien,  it  of  course  cannot  exist  after  the  debtor  had  himself  ceased  to 
have  any  lien  from  which  it  could  be  derived. 

The  leading  case  upon  this  subject  is,  perhaps,  that  of  Case  v.  Beau- 
regard, 99  U.  S.  119,  in  which  it  was  held  that  transfers  made  by  the 
individual  members  of  an  insolvent  firm  of  their  interest  in  the  part- 
nership assets  terminated  the  equity  of  any  partner  to  require  the 
application  thereof  to  the  payment  of  firm  debts,  and  was,  therefore, 
a  complete  bar  to  a  bill  filed  b}'  the  partnership  creditors  for  that  pur- 
pose. But  probably  no  clearer  enunciation  of  the  doctrine  is  to  be 
found  than  that  of  Mr.  Justice  Matthews  in  Fitzpatrick  v.  Flannagan, 
10G  U.  S.  654.  He  says:  "The  legal  right  of  a  partnership  creditor 
to  subject  the  partnership  property  to  the  pa3*ment  of  his  debt  con- 
sists simply  in  the  right  to  reduce  his  claim  to  judgment,  and  to  sell 
the  goods  of  his  debtors  on  execution.  His  right  to  appropriate  the 
partnership  property  specifically  to  the  payment  of  his  debt,  in  equity, 
in  preference  to  creditors  of  an  individual  partner,  is  derived  through 
the  other  partner,  whose  original  right  it  is  to  have  the  partnership 
assets  applied  to  the  payment  of  partnership  obligations.  And  this 
equity  of  the  creditor  subsists  as  long  as  that  of  the  partner,  through 
which  it  is  derived,  remains  ;  that  is,  so  long  as  the  partner  himself 
'  retains  an  interest  in  the  firm  assets  as  a  partner,  a  court  of  equity 
will  allow  the  creditors  of  the  firm  to  avail  themselves  of  his  equity, 
and  enforce  through  it  the  application  of  those  assets  primarily  to 
payment  of  the  debts  due  them,  whenever  the  propert}*  comes  under  its 
administration.'  Such  was  the  language  of  this  court  in  Case  v.  Beau- 
regard, 99  U.  S.  119,  in  which  Mr.  Justice  Strong,  delivering  its  opin- 
ion, continued  as  follows  :  '  It  is  indispensable,  however,  to  such  relief, 
when  the  creditors  are,  as  in  the  present  case,  simple  contract  creditors, 
that  the  partnership  property  should  be  within  the  control  of  the  court, 
and  in  the  course  of  administration  brought  there  by  the  bankruptcy 
of  the  firm,  or  by  an  assignment,  or  by  the  creation  of  a  trust  in  some 
mode.  This  is  because  neither  the  partners  nor  the  joint  creditors 
have  any  specific  lien,  nor  is  there  any  trust  that  can  be  enforced  until 
the  property  has  passed  in  custocliam  legist  Hence  it  follows  that  '  if, 
before  the  interposition  of  the  court  is  asked,  the  propertj-  has  ceased 
to  belong  to  the  partnership,  if  by  a  bona  fide  transfer  it  has  become 
the  several  propert}-  either  of  one  partner  or  of  a  third  person,  the 
equities  of  the  partners  are  extinguished,  and  consequently  the  deriva- 
tive equities  of  the  creditors  are  at  an  end.' " 

And   in  Schmidlapp  v.  Carrie,  55  Miss.  600,  the  rule  is  admirably 
stated  by  Mr.  Justice  Chalmers  as  follows:  "The  firm  creditors   at 


;  NOT   DEVESTED    BY    SALE    OF    A    PARTNER'S    IXTEKEST.  239 

large  of  a  partnership  have  no  lien  on  its  assets  anymore  than  ordinary 
creditors  have  upon  the  property  of  an  individual  debtor.  The  power 
of  disposition  over  their  property  inherent  in  every  partnership  is  as 
unlimited  as  that  of  an  individual,  and  the  jus  disponendi  in  the  firm, 
all  the  members  co-operating,  can  only  be  controlled  by  the  same  con- 
siderations that  impose  a  limit  upon  the  acts  of  an  individual  owner, 
namely,  that  it  shall  not  be  used  for  fraudulent  purposes.  So  long  as 
the  firm  exists,  therefore,  its  members  must  be  at  liberty  to  do  as  they 
choose  with  their  own.  and  even  in  the  act  of  dissolution  they  may  im- 
press upon  its  assets  such  character  as  they  please.  The  doctrine  that 
firm  assets  must  first  he  applied  to  the  payment  of  firm  debts,  and  indi- 
vidual property  to  individual  debts,  is  only  a  principle  of  administra- 
tion adopted  by  the  courts  where  from  any  cause  they  are  called  upon 
to  wind  up  the  firm  business,  and  find  that  the  members  have  made  no 
valid  disposition  of,  or  charges  upon,  its  assets.  Thus,  where  upon  a 
dissolution  of  the  firm  by  death  or  bankruptcy,  or  from  an}-  other 
cause,  the  courts  are  called  upon  to  wind  up  the  concern,  the}'  adopt 
and  enforce  the  principle  stated  ;  but  the  principle  itself  springs  alone 
out  of  the  obligation  to  do  justice  between  the  partners.  The  only 
way  to  accomplish  this  is  to  so  marshal  the  assets  that  property  which 
was  owned  in  common  shall  be  applied  to  the  joint  debts,  and  that 
which  was  separate!}'  owned  shall  be  applied  to  the  liabilities  of  its 
separate  owner,  so  that  neither  class  of  creditors  shall  be  allowed  to 
trespass  upon  the  fund  belonging  to  the  other  until  the  claims  of  that 
other  shall  have  been  satisfied.  This  right  of  the  creditors  is,  there- 
fore, really  the  right  of  their  debtors,  and  enures  to  them  derivatively 
from  the  debtors.  Hence  it  is  said  that  the  lien  or  quasi  lien  of  the 
creditor  '  is  worked  out  through  the  partners/  the  meaning  of  which 
is  that  the  firm  creditors  may  demand  the  primary  application  of  the 
firm  assets  to  the  payment  of  their  debts,  because  each  one  of  the 
partners  would  have  a  right  to  demand  this  as  against  his  co-partners." 
This  doctrine  is  likewise  supported  by  the  following  authorities :  2 
s,  Partn.  §  824;  T.  Pars.  Partn.  §  246  et  seq.,  and  note;  Huis- 
kamp  v.  Wagon  Co.,  121  U.  S.  310;  Goldsmith  v.  Eichold,  94  Ala. 
110;  Jones  v.  Fletcher,  42  Ark.  423;  Woolen  Mills  v.  Conklin, 
26  Iowa,  422  ;  and  many  others  which  it  is  not  deemed  necessary 
to  cite. 

The  courts  of  New  York  (Mcnagh  v.  Whitwell,  52  N.  Y.  146),  and 
perhaps  those  of  another  state  or  two,  seem  to  hold  to  a  contrary  doc- 
trine, but  they  are  decidedly  in  the  minority,  and  we  are  not  sufficiently 
impressed  with  the  soundness  of  the  reasons  upon  which  their  decisions 
are  founded  to  follow  them  in  opposition  to  what  we  conceive  to  be  the 
great  weight  of  authority. 

Applying  the  doctrine  stated  to  the  case  in  hand,  the  solution  is 
char,  it  is  admitted  by  the  complaint  that  the  entire  right  and  inter- 
est of  each  of  the  partners  in  the  firm  of  Osmers  &  Hughes  in  the 
partnership  property  had  been  sold  and  transferred  long  prior  to  the 


240  THE  NATURE  OF  A  PARTNERSHIP.       [CHAP.  III. 

commencement  of  this  suit,  and  that  neither  of  such  partners  had  an}' 
interest  therein  at  the  time  the  suit  was  commenced,  and  hence,  under 
the  rule  stated,  it  cannot  be  maintained. 

The  decree  must  therefore  be  affirmed,  and  it  is  so  ordered. 


WOOD  v.   AMERICAN   FIRE  INS.   CO. 

149  N.  Y.  382:  44  N.  E.  80.     1896. 

O'Brien,  J.  The  plaintiff  recovered  upon  a  polic}7  of  insurance,  of 
which  she  was  the  assignee,  issued  by  the  defendant,  upon  a  building 
used  as  a  store,  January  9,  1891,  and  which  was  destroyed  by  fire 
March  31,  1891.  The  only  defences  interposed  by  the  answer,  which 
were  proven  and  found  at  the  trial,  were:  (1)  That  Wood  Brothers, 
a  firm  composed  of  six  brothers,  which  owned  the  property  and  pro- 
cured the  insurance,  had  not,  at  the  time,  the  sole  and  unconditional 
title  or  ownership  of  the  property  ;  and  (2)  that  the  property  covered 
by  the  policy  had  been  sold  upon  judgment  and  execution  against  the 
firm  some  days  before  the  loss.  The  contract  was  made  by  means  of 
what  is  known  as  the  "  standard  policy,"  which  contained  the  condition 
that  it  "  shall  be  void  ...  if  the  interest  of  the  insured  shall  be  other 
than  unconditional  and  sole  ownership,  or  .  .  .  if  any  change,  other 
than  by  the  death  of  an  assured,  take  place  in  the  interest,  title,  or  pos- 
session of  the  subject  of  the  insurance,  .  .  .  whether  by  legal  process 
or  judgment,  or  by  the  voluntary  act  of  the  insured  or  otherwise." 

With  respect  to  the  defence  first  referred  to,  it  appeared  that  in  the 
year  1885,  one  of  the  individuals  composing  the  firm  made  a  general 
assignment  of  his  individual  property  for  the  benefit  of  his  creditors, 
and  also  of  his  interest  in  the  firm ;  that  in  1888  his  assignee  sold 
whatever  interest  in  the  firm  property  that  passed  to  him  by  the  as- 
signment to  a  third  party,  and  before  the  policy  was  issued  had 
accounted  and  been  discharged.  The  assignee  had  no  accounting  with 
the  firm  in  order  to  ascertain  what  interest  the  assignor  had,  in  the 
surplus,  if  any,  and  no  claim  was  ever  made  upon  the  firm  for  any- 
thing passing  by  the  assignment.  It  appeared  by  the  proofs  and  find- 
ings that  the  defendant's  agents,  who  were,  as  may  be  fairly  inferred, 
general  agents,  knew,  at  the  time  of  issuing  the  policy  and  before,  all 
the  facts  and  circumstances  with  respect  to  the  individual  assignment 
and  the  transfer  of  that  interest  as  above  stated. 

The  answer  to  the  defence,  based  upon  these  facts,  is  twofold :  (1) 
That,  since  the  title  to  the  real  estate  held  by  a  partnership  is  in  the 
firm,  and  not  in  the  individual  members  of  it,  the  transfer  of  the  in- 
terest of  one  of  the  members,  before  the  insurance,  had  no  effect  upon 
the  unconditional  and  sole  ownership  of  the  firm  ;  that  an  assignment 
by  one  partner  of  his  share  in  the  partnership  stock  simply  transfers 


8  3.1        XOT   DETESTED    BY    SALE    OF    A    PAETNEE'S   INTEREST.  241 

anv  interest  he  may  have  in  any  surplus  remaining  after  payment  of  the 
firm  debts  and  the  settlement  of  the  firm  accounts.  Whether  the  pur- 
chaser of  such  an  interest  takes  anything  whatever  by  the  transfer  can- 
not be  known  until  all  the  partnership  affairs  have  been  settled  and 
adjusted.  Menagh  v.  Whit  well,  52  N.  Y.  146.  The  title  to  the  real 
property,  which  was  the  subject  of  the  insurance,  was  iu  the  partner- 
ship firm,  and  was  not  affected  by  the  assignment  of  one  of  the  mem- 
bers. It  still  remained  firm  property,  since  the  assignee  had  no 
interest  in  it  as  such,  and  whether  the  sale  or  transfer  by  the  individual 
member  was  anything  more  than  a  mere  form,  or  conveyed  anything 
to  the  assignee,  must  depend  upon  the  existence  of  a  surplus  after  the 
partnership  affairs  are  adjusted.  It  does  not  even  appear,  in  this  case, 
that  there  would  then  be  any  surplus  to  divide,  though  that  circum 
stance  cannot  be  regarded  as  material  upon  the  question  wrhether  such 
a  transfer  by  a  member  affects  or  changes  the  estate  or  interest  which 
the  firm  has  in  the  partnership  realty.  (2)  That  general  agents  of  an 
insurance  company  may  waive  stipulations  and  provisions,  contained 
in  the  policy,  with  respect  to  the  conditions  upon  which  it  shall  have 
inception  and  go  into  operation  as  a  contract  between  the  parties,  by 
delivering  it,  with  knowledge  of  all  the  facts,  and  receiving  the  pre- 
mium, lias  long  been  settled.1  .  .  . 

All  concur,  except  Gray,  J. ,  who  dissents  upon  the  ground  that  the 
policy  was  avoided  by  the  change  of  interest  effected  by*  the  sale  of  the 
property.2 

Judgment  affirmed. 


PATTERSON  v.   ATKINSON  et  al. 

37  At.  (11.  I.)  532.     1897. 

Tillixgiiast,  J.  The  object  of  this  bill  is  to  reform  a  mortgage  deed 
of  personal  property.  The  bill  sets  out,  in  substance,  that  by  a  mistake 
of  the  scrivener  in  drafting  the  mortgage  deed  in  question,  a  part  of 
the  property  which  was  mutually  intended  to  be  included  therein  was 
omitted  ;  and  also  that  said  mortgage  purports  to  conve\r  the  entire 
property  described  therein,  when  it  was  only  intended  to  conve}'  the 
mortgagor's  interest  in  said  property  ;  and  that,  in  order  to  make  said 
mortgage  deed  conform  to  the  actual  intention  of  the  parties,  and  to 
truly  represent  the  contract  entered  into  between  them,  it  is  necessary 
that  it  should  be  reformed.  The  bill  prays  that  said  mortgage  deed 
may  be  reformed  so  as  to  give  effect  to  the  intention  of  the  parties 

1  Following  MeXally  v.  V.  Ins.  Co.,  137  X.  Y.  389. 

2  The  majority  <>f  the  court  held  that  a  sale  of  the  real  estate,  about  ten  days  before 
the  lire,  by  the  sheriff  under  an  execution  against  the  firm,  did  not  effect  a  change  "f 
Interest,  :>>,  under  the  statute,  the  right  and  title  of  the  judgment  debtors  were  not 
devested,  —  they  having  fifteen  months  within  which  to  redeem,  aud  being  entitled  to 
possesion  during  that  period. 

16 


242  THE   NATUKE    OF   A   PAKTNERSHIP.  [CHAP.  IIL 

thereto,  and  for  other  relief.  As  to  the  power  of  a  court  of  equity  to 
reform  such  a  mortgage  deed  of  personal  property,  see  Ryder  v.  Ryder, 
Index,  RR.  23,  32  Atl.  919. 

The  respondent  Coombs  demurs  to  the  bill  on  the  grounds  :  (1)  That 
it  appears  therefrom  that  the  mortgage  was  given  on  partnership  prop- 
erty belonging  to  the  firm  of  Coombs  &  Atkinson,  to  secure  the  individ- 
ual debt  of  said  Atkinson,  which,  under  the  law,  cannot  be  done  ;  and 
(2)  that  it  appears  from  the  bill  that  said  Atkinson  owned  only  an 
undivided  half  interest  in  the  machinery  and  goods  and  chattels  men- 
tioned and  described,  and  that  by  attempting  to  convey  the  entire 
property  he  converted  the  same  to  his  own  use,  and  hence  the  mortgage 
is  null  and  void. 

The  first  and  principal  question  raised  by  the  demurrer  is  whether  a 
co-partner  can  give  a  valid  mortgage  on  partnership  property  to  secure 
his  individual  debt.     We  think  he  can.     Of  course  such  a  mortgage  is 
subject  to  the  prior  equities  of  the  partnership  creditors,  and  also  of  the 
other  partners.     But  whatever  surplus  remains  to  the  credit  of  the  part- 
ner giving  the  mortgage,  after  the  affairs  of  the  firm  are  settled,  will 
belong  to  the  mortgagee.     1  Bates,  Partn.  §§  183,  184;  Jones,  Chat. 
Mortg.  2d  ed.  §  45  ;   Thompson  v.  Spittle,  102  Mass.  207.     See  also 
Pars.  Partn.  2d  ed.  §   100  et  seq.     In  Randall  v.  Johnson,  13   R.  I. 
338,  this  court  held  that  the   interest  of  a  co-partner  in  partnership 
property  is  attachable  by  an  individual  creditor  of  such  co-partner,  and 
also  that  in  case  of  such  an  attachment  the  sheriff  may  seize  a  specific 
chattel,  and  deliver  it  to  the  purchaser  of  the  interest  attached,  who, 
subject  to  the  partnership  debts  and  equities,  thereby  becomes  a  tenant 
in  common  of  such  chattel  with  the  other  partners.     In  Trafford  v. 
Hubbard,  15  R.  I.  327,  the  court  affirmed  the  same  doctrine.     And  if, 
against  the  will  of  a  co-partner,  his  interest  in  co-partnership  property 
may  be  attached  by  his  creditor  for  his  individual  debt,  we  see  no  reason 
why  such  co-partner  may  not  voluntarily  secure  a  creditor  by  mortgag- 
ing his  interest  in  the  firm  property.     In  speaking  of  the  power  of  a  co- 
partner to  sell  his  interest  in  the  firm  property  to  a  third  person,  Mr. 
Bates,  in  his  valuable  work  on  Partnership  (volume  1,  §    183),  says 
that  "  such  sale  ...  is  effectual  to  carry  the  right,  after  winding  up, 
to  such  share  of  surplus  as  would  otherwise  have  been  due  to  the  part- 
ner, in  preference  to  other  and  unsecured  individual  creditors."     The 
same  doctrine  is   recognized    in   Bank  v.  Godwin,  5  N.  J.  Eq.  334. 
The  cases  cited  by  respondents'  counsel  in  support  of  the  demurrer,  in 
so  far  as  they  are  opposed  to  the  doctrine  above  enunciated,  were 
decided  by  courts  where  the  right  to  attach  partnership  property  for  the 
private  debts  of  an  individual  partner  is  not  recognized  because  of  its 
prejudicial  effect  upon  the  rights  of  the  other  partners  ;  and  hence, 
being  opposed  to  the  settled  law  of  this  State,  and  we  think  also  to  the 
weight  of  authority  elsewhere,  they  are  not  controlling. 

The  second  question  raised  by  the  demurrer  is  whether,  by  attempt- 
ing to  convey  the  entire  property,  as  the  mortgage  on  its  face  purports 


S  3.]        NOT   DEVESTED    BY    SALE    OF   A    PARTNER'S    INTEREST.  243 

to  do,  the  mortgagor  converted  the  same  to  his  own  use,  and  thus 
rendered  the  mortgage  null  and  void.  It  is  true  that  assuming  to  one's 
self  the  property  and  right  of  disposition  of  another's  goods  is  a  conver- 
sion thereof.  And,  of  course,  it  is  clear  that  in  a  case  where  a  person 
gives  a  mortgage  on  property  which  does  not  belong  to  him,  without 
the  consent  or  knowledge  of  the  owner,  such  mortgage  is  a  nullity. 
But  such  is  not  the  case  here.  The  bill  shows  that  the  respondent, 
William  J.  Atkinson,  at  the  time  of  the  giving  of  the  mortgage  in  ques- 
tion, was  the  owner  of  an  undivided  half  interest  in  the  property,  which 
he  mortgaged  to  the  complainant.  And,  while  the  mortgage  purports  to 
convey  the  entire  property  described  therein,  yet  this  is  alleged  to  have 
been  caused  by  a  mistake  on  the  part  of  the  scrivener ;  and  the  com- 
plainant is  seeking  by  his  bill  to  rectif}'  this  mistake.  And  if  it  turns 
out  at  the  trial  of  the  case  that  the  mortgagor  only  intended  to  convey 
his  undivided  half  interest  in  the  partnership  propert}-,  and  that  this 
was  in  accordance  with  the  contract  between  him  and  the  mortgagee, 
then  the  mortgage  will  not,  in  effect,  be  one  conveying  or  attempting 
to  convey  property  belonging  to  his  co-partner,  but  only  his  individual 
interest  therein,  and  hence  will  not  be  obnoxious  to  the  objection  afore- 
said. The  respondents'  counsel  seems  to  take  the  somewhat  incon- 
sistent position  that,  as  the  mortgage  purports  to  be  a  conveyance  of 
the  entire  property,  it  is  to  be  taken  at  its  face  value,  although  the  bill 
shows  that  it  was  not  so  intended  ;  and  by  demurring  to  the  bill  the 
respondents  admit  that  it  was  not  so  intended.  As  the  bill  sets  out 
what  sort  of  a  mortgage  was  mutually  intended  to  be  given,  we  have  to 
deal  with  that,  for  the  purposes  of  the  demurrer,  instead  of  dealing  with 
the  one  which  appears  to  have  been  given. 

Demurrer  overruled. 


STATE  BANK  OF  LUSHTON   v.   O.   S.   KELLEY  CO. 

47  Neb.  G78 :  66  N.  W.  619.     1896. 

Ragax,  C.  On  the  8th  day  of  May,  1891,  Peter  Peters  and  John 
Peters,  by  their  order  or  contract  in  writing,  purchased  a  threshing 
machine  of  the  O.  S.  Kelley  Company.  The  machine  was  to  be  deliv- 
ered to  them  not  later  than  the  20th  of  July  of  that  year,  and  they  were 
to  pay  for  the  same  $585.  Part  of  this  payment  was  to  be  made  in 
cash,  on  delivery  of  the  machine,  and  the  remainder  to  be  evidenced 
by  their  notes  secured  by  a  chattel  mortgage  on  the  machine.  The 
machine  was  delivered  on  the  23d  of  July,  cash  payment  made,  and 
John  and  Peter  executed  their  joint  and  several  promissory  notes  to 
Che  Kelley  Company  for  the  remainder  of  the  purchase  price  of  the 
machine,  and  at  the  same  time  executed  to  the  Kelley  Company  :i 
chattel  mortgage  on  the  machine  to  secure  the  payments  of  their  notes. 
By  mistake  this  mortgage  was  filed  in  the  office  of  the  county  clerk  of 


244  THE  NATUEE  OF  A  PARTNERSHIP.       [CHAP.  III. 

York  Count}',  although  the  mortgagors  resided  in  Hamilton  County.  On 
the  13th  day  of  October,  1891,  Peter  Peters  mortgaged  the  threshing 
machine  to  the  State  Bank  of  Lushton  to  secure  a  debt  which  he  then, 
and  had  for  some  time,  owed  the  bank.  The  bank  subsequently  took 
possession  of  the  threshing  machine  under  its  chattel  mortgage,  and 
was  proceeding  to  foreclose  the  same  when  the  Kelley  Company,  by 
this  action,  replevied  the  threshing  machine  from  the  bank.  The  ac- 
tion was  tried  to  a  jury  in  the  district  court  of  York  County,  a  verdict 
and  judgment  rendered  for  the  Kelley  Compan}-,  and  the  bank  prose- 
cutes to  this  court  a  partition  in  error.  . 

1.  On  the  trial  the  district  court,  at  the  request  of  the  Kelley 
Company,  instructed  the  jury  as  follows  :  "  The  jury  are  instructed 
that  the  law  is  that  partnership  effects  cannot  be  released  from  liability 
for  the  unpaid  debts  of  the  partnership  without  the  consent  of  every 
member  of  the  firm.  The  corpus  of  partnership  effects  is  'joint  prop- 
ert}',  and  neither  partner  separately  has  anything  in  that  corpus,  but 
the  interest  of  each  is  only  his  share  of  what  remains  after  the  partner- 
ship accounts  are  taken.  In  this  case,  if  you  believe  from  the  evidence 
that  Peter  Peters  and  John  Peters  purchased  of  the  plaintiff  in  this 
vase  the  power  and  separator  described  in  the  plaintiff's  petition,  in 
partnership,  to  be  used  and  operated  by  them  in  threshing,  and  as  a 
part  of  the  transaction  the  said  Peter  Peters  and  John  Peters  executed 
and  delivered  to  the  plaintiff  the  notes  and  mortgage  described  in  the 
petition,  and  put  in  evidence  by  the  plaintiff  in  this  case,  to  secure  the 
payment  of  the  purchase  price  of  the  said  outfit,  then  the  plaintiff  in 
this  case  would  have  the  first  lien  upon  the  property  in  question  to  the 
amount  unpaid  upon  said  mortgage,  and  the  said  Peter  Peters  would 
have  no  right  to  execute  a  mortgage  upon  the  said  threshing  outfit  to 
secure  his  individual  indebtedness,  to  the  prejudice  of  the  plaintiff  in 
this  case  ;  and  any  mortgage  so  given  by  the  said  Peter  Peters  to  secure 
his  individual  indebtedness  would  be  subject  to  the  mortgage  of  this 
plaintiff,  regardless  of  whether  plaintiff's  mortgage  was  ever  filed  in  the 
office  of  the  clerk  of  the  county  or  not." 

The  first  assignment  of  error  argued  is  directed  to  the  giving  of  this 
instruction.  The  evidence  shows  that  John  and  Peter  Peters  were 
farmers  and  brothers,  residing  in  Hamilton  County,  at  the  time  they 
purchased  the  threshing  machine,  and  executed  the  notes  and  mortgage  to 
the  Kelley  Company  ;  that  Peter  Peters  and  a  son  of  John  Peters  accom- 
panied the  machine  from  place  to  place,  and  used  it  in  threshing  grain. 
Whatever  may  be  said  of  this  instruction  as  an  abstract  proposition  of 
law,  we  think  it  had  no  place  in  this  case.  It  submitted  to  the  jury  the 
question  as  to  whether  John  and  Peter  were  co-partners,  and  there  is  no 
evidence  whatever  in  the  record  which  would  justify  the  jury  in  making 
such  a  finding.  Counsel  for  the  defendant  in  error  assume  that,  be- 
cause John  and  Peter  jointly  purchased  and  jointly  owned  this  property, 
therefore  a  partnership  relation  existed  between  them  ;  but  such  a  result 
by  no  means  follows.     They  were  rather  joint  owners,  or  tenants  in  com- 


§  4.]  FIRM    TITLE   AFTER   THE   DEATH   OF   A    PARTNER.  245 

mon,  so  far  as  the  record  shows,  of  the  property.  In  Waggoner  v.  Bank, 
43  Neb.  84,  it  was  held  (following  the  definition  given  by  Chancellor  Kent) 
that,  "  Partnership  is  a  contract  of  two  or  more  competent  persons  to 
placetheir  money,  effects,  labor,  skill,  or  some  or  all  or  tbem,  in  lawful 
commerce  or  business,  and  to  divide  the  profit  or  bear  the  loss  in 
certainj)roportiousJl^-And  in  I  lift"  v.  Brazil!.  27  Iowa.  liJl.  it  was  hold  ' 
thiat7*T'"where  two  farmers  bivy  in  common  a  threshing  machine,  which 
they  use  and  operate  together,  and  for  which  they  execute  to  the  ven- 
dor a  note  signed  by  both  individually,  they  are  to  be  treated  as  joint 
owners,  and  not  as  partners."  In  Quackenbush  v.  Sawyer,  54  Cal. 
439,  it  was  held  that,  "a  mere  joint  ownership  in  personal  property 
does  not  constitute  a  partnership."  To  the  same  effect,  sec  Wheeler 
v.  Farmer,  38  Cal.  203  ;  Hawes  v.  Tilliughast,  1  Gray,  289 ;  Goell 
r.  Morse,  12G  Mass.  480  ;  Moore  v.  Curry,  106  Mass.  409  ;  Vose  v. 
Singer,  4  Allen,  226  ;  Donnan  v.  Gross,  3  111.  App.  409  ;  Sargent  v. 
Downey,  45  Wis.  498  ;  Cinnamond  v.  Greenlee,  10  Mo.  578  ;  Ward 
v.  Bodeman,  1  Mo.  App.  272.  We  do  not  sa}T  that  John  and  Peter  were 
not  partners,  nor  that  the  threshing  machine  was  not  partnership 
property ;  but  what  we  do  decide  is  that  the  mere  fact  that  they  jointly 
purchased,  owned,  and  operated  the  threshing  machine  does  not  estab- 
lish that  a  co-partnership  existed  between_t.hr.  jnint  pwrifs,  n^r  tint 
the  t3yiiOQnng[^^  prnpoH-.y      ft"  far  as  the 

record  before  us  goes,  John  and  Peter  were  joint  owners —  tenants  in 
common  —  of  the  threshing  machine,  and  the  bank  acquired  a  lien 
upon  the  interest  of  Peter  Peters  in  the  threshing  machine,  by  virtue 
of  the  mortgage  he  made  thereon.   .  .  . 

Judgment  reversed. 


"0"DV 


§  4.    Firm  Title  after  the  Death  of  a  Partner. 

HAMMOND   v.   JETHRO. 

2  Brownlow,  99,  note.     1611. 

"  Note  that  it  was  agreed  by  all  the  justices  that  by  the  Law  of 
Merchants,  if  two  Merchants  joyn  in  trade,  that  of  the  increase  of  that, 
if  one  dye,  the  others  shall  not  have  the  benefit  by  survivor.  See  Fitz- 
herhert's  Niztura  bj-evium,  Accompte,  38  Ed.  3  (7).  And  so  of  twojoynt 
Shop-keepers,  for  they  are  Merchants:  for  as  Coke  saith,  there  are  four 
sorts  of  Merchants,  that  is,  Merchant  Adventurers,  Merchants  Dor- 
mants,  Merchants  Travelling  and  Merchants  Residents,  and  amongst 
them  all  there  shall  be  no  benefit  by  survivor." 


246  THE    NATURE   OF   A   PARTNERSHIP.  [CHAP.  IK. 

HAIG  v.  GRAY. 

3  De  G.  &  S.  741.     1850. 

Suit  by  a  surviving  partner  against  a  debtor  to  the  firm  for  an 
account  of  the  dealings  between  the  defendant  and  the  partnership. 
Defendant  demurred  for  want  of  parties,  the  executor  of  the  deceased 
partner  not  having  been  brought  before  the  court. 

Mr.  Lee  and  Mr.  F.  8.  Williams,  in  support  of  demurrer. 

Mr.  Mussell  and  Mr.  Haig  were  not  called  upon. 

The  Vice-Chancellor.  I  apprehend  it  to  be  generally  true,  that, 
a  debt  having  become  due  to  a  partnership  of  two  persons,  one  of  them 
having  died,  and  the  debt  being  in  its  nature  demandable  by  a  suit  in 
equity,  the  surviving  partner  may  sue  for  it  in  equity  (whether  the 
amount  is  to  depend  on  the  result  of  an  account  or  otherwise),  without 
making  the  representative  of  the  deceased  partner  a  party.  There 
may,  however,  be  circumstances  requiring  a  departure  from  this 
general  rule  ;  and  the  question  is,  whether  there  are  here  any  such  cir- 
cumstances? One  circumstance  relied  upon  is,  that  of  the  executor  of 
the  deceased  partner  having  written  to  the  debtor  with  respect  to  the 
debt  to  accelerate  its  payment ;  but  I  do  not  think  this  sufficient  to 
create  an  exception  to  the  general  rule.  Another  circumstance  relied 
upon  is,  that  the  alleged  debtor  has  himself  filed  a  bill  against  the  sur- 
viving partner,  making  the  representative  of  the  deceased  partner  a 
party  to  it.  Assuming  him  to  have  been  correct  in  taking  that  course, 
I  think  that  it  does  not  vary  the  right  of  the  surviving  partner  to  sue 
as  he  sues  here. 

Demurrer  overruled,  with  costs. 


NEHRBROSS  et  al.  v.  BLISS  et  al. 

88  N.  Y.  600.     1882. 

Action  to  set  aside  a  deed  executed  by  the  sheriff  of  Niagara  County, 
to  defendant  Bliss,  and  to  compel  the  sheriff  to  execute  a  deed  to  plain- 
tiffs. The  premises  in  question  were  bid  off  to  plaintiffs'  testator  upon 
a  sale  under  execution.  Defendant  Bliss  redeemed  the  premises  under 
a  judgment  recovered  by  him  as  surviving  partner  of  the  firm  of 
Bliss  &  Pierce.  A  judgment  in  favor  of  the  plaintiffs,  entered  upon  the 
report  of  a  referee,  was  reversed  by  the  General  Term,  and  the  plaintiffs 
appealed. 

Joseph  V.  Seaver,  for  appellants. 

George  Wing,  for  respondents. 

Danforth,  J.  The  appellants  concede  that  the  only  question  raised 
upon  the  trial  was  as  to  the  effect  of  the  papers  filed  for  the  purpose  of 
redemption.     And  the   precise   objection,  as  indicated   by  the  points 


§4-] 


FIRM   TITLE    AFTER   THE    DEATH    OF    A    PARTNER.  247 


submitted  by  the  learned  counsel  in  support  of  this  appeal,  is  that 
Seth  P.  Blisses  described  therein  as  the  redeeming  party  without  words 
indicating  that  he  is  the  survivor  of  himself  and  Pierce,  as  he  is  named 
in  the  judgment  record  under  which  he  sought  to  redeem. 

The  proceedings  are  statutory,  and  it  is  to  be  conceded  that  words 
cannot  be  added  to  or  omitted  from  the  statute  for  any  purpose,  but 
on  the  contrary  its  language  is  to  be  construed  strictly.  The  defend- 
ant claimed  the  right  to  redeem  under  section  1464  of  the  Code  of 
Civil  Procedure.  He  was,  therefore,  required  to  file  in  the  county 
clerk's  office,  or  deliver  to  the  sheriff  as  evidence  of  his  right :  first, 
a  copy  of  the  docket  of  the  judgment  under  which  he  claimed  the  right 
to  redeem  ;  second,  if  that  right  depends  upon  any  assignment  of  the 
judgment,  it  must  also  be  filed,  etc. ;  and  third,  an  affidavit  made  by 
Mm  stating  truly  the  sum  unpaid  upon  the  judgment. 

The  copy  of  docket  furnished  by  the  respondents  described  a  judg- 
ment in  which  "Seth  P.  Bliss,  as  survivor  of  himself  and  Jerome 
Pierce,  deceased,"  is  plaintiff.  It  was  accompanied  by  no  assignment 
or  other  paper,  save  an  affidavit  attached  thereto,  which,  so  far  as 
material  to  our  present  inquiry,  is  in  these  words  :  "  Seth  P.  Bliss, 
being  duly  sworn,  says  that  he  is  the  owner  and  holder  of  the  judg- 
ment mentioned  in  the  foregoing  copy  of  docket  of  judgment,  and  that 
there  is  due,"  etc.  Upon  the  death  of  Pierce,  the  legal  rights  under 
the  firm  contracts  or  causes  of  action,  and  the  sole  right  to  collect  the 
partnership  debts,  remained  in  the  survivor,  Viner'sAbr.,  Partners  D. ; 
1  Lindley  on  Partn.,  505  ;  Voorhis  v.  Child's  Ex's,  17  N.  Y.  354,  and 
voted  so  effectually  that  upon  his  death  it  would  have  devolved  upon 
his  personal  representative,  and  he  alone  could  sue  upon  it.  1  Williams 
on  Exr.  1585 ;  Copes  v.  Fultz,  1  Sm.  &  Mar.  625.  So  if  Bliss  died 
after  judgment,  redemption  could  have  been  had,  under  section  1466, 
by  the  executor  or  administrator  of  Bliss. 

The  right  to  the  cause  of  action,  and  to  sue  therefor,  came  to  Bliss 
by  survivorship,  and  that  is  indicated  in  the  title  of  the  judgment. 
But  so  completely  was  it  vested  that  a  demand  against  him  in  his  own 
right  might  have  been  set  off  in  diminution  of  his  claim  as  surviving 
partner.  Slipper  v.  Stidstone,  5  Term.  Pep.  493,  and  conversely  French 
v.  Audrade,  6  Id.  582.  It  follows,  therefore,  that,  as  surviving  partner, 
he  might  join  in  one  action  a  count  for  a  debt  due  him  in  his  own  right, 
and  one  due  him  as  survivor.  Adams  v.  Hackett,  27  N.  II.  289.  Or  a 
plaintiff,  in  an  action  charging  him  in  his  own  right,  might  recover  a 
demand  due  from  him  individually,  and  another  due  from  him  as  sur- 
viving partner.  Richards  v.  Heather.  1  B.  &  Aid.  29.  Therefore, 
although  the  action  was  in  his  name  as  survivor,  it  was  his  own,  and 
lie  had  the  legal  title  to  the  judgment,  as  much  so  as  if  the  cause  of 
action  had  stood  in  his  own  right.  Kemp  v.  Andrews,  1  Showers, 
188,  case  138;  Murray  v.  Mumford,  6  Cow.  441  ;  Daby  v.  Ericsson, 
15  X.  V.  786.  Consequently,  it  was  not  necessary  for  him  as  redeem* 
ing  creditor  to  present  any  assignment  of  the  judgment  to  himself,  of 


248  THE  NATUKE  OF  A  PARTNERSHIP.       [CHAP.  III. 

add  to  the  statement  in  the  affidavit  an}*  other  words  showing  his 
identity  with  the  judgment  creditor.  He  was  in  law  the  owner  of  the 
judgment,  and  appeared  to  be  so  on  the  face  of  the  papers.  No  other 
point  needs  consideration.  The  redemption,  for  aught  that  now  ap- 
pears, was  made  according  to  the  letter  of  the  statute,  and  the  order 
appealed  from  should  be  affirmed  with  costs,  and  judgment  absolute 
rendered  in  favor  of  the  defendants  and  against  the  plaintiffs,  pursuant 
to  their  stipulation. 

Order  and  judgment  affirmed. 


PATTON  v.  CARR. 

117  N.  C.  176  :  23  S.  E.  182.     1895. 

Furches,  J.  Counsel,  in  their  well-considered  arguments,  presented 
this  case  in  several  aspects  ;  but  we  are  of  the  opinion  that  a  correct 
solution  of  the  whole  controversy  depends  on  a  few  well-defined  princi- 
ples of  commercial  law  and  of  equity. 

C.  H.  Conrad  and  the  plaintiff,  Patton,  were  partners,  doing  a  bank- 
ing business  in  Danville,  Va.  ;  and  Conrad,  on  the  17th  of  March,  1893, 
executed  a  note  payable  to  the  defendant,  Carr,  for  $5,000,  due  four 
months  after  date,  which  Carr,  at  the  request  and  for  the  accommoda- 
tion of  Conrad,  indorsed.  Soon  thereafter  Conrad  presented  this  note 
at  the  banking-house  of  plaintiff  and  Conrad,  and  it  was  there  dis- 
counted. Before  the  maturity  of  this  note,  Conrad  died,  intestate, 
leaving  the  plaintiff  the  only  surviving  partner  of  this  partnership 
concern.  Not  long  after  the  death  of  C.  H.  Conrad,  and  before  the 
commencement  of  this  action,  one  C.  L.  Holland  was  duly  appointed 
and  qualified  as  the  administrator  of  said  Conrad  ;  and  the  plaintiff, 
Patton,  as  said  surviving  partner,  commenced  a  suit  in  equity,  in  the 
city  of  Danville,  Va.,  for  a  final  account  and  settlement  of  said  concern, 
for  injunctive  relief,  and  for  a  receiver,  in  which  the  plaintiff  was  ap- 
pointed, and  commenced  this  action,  as  surviving  partner  and  receiver, 
against  the  defendant,  Carr,  as  the  indorser  of  said  note. 

Defendant,  answering,  admits  that  he  indorsed  the  note  ;  that  he  did 
so  at  the  request  of  Conrad,  and  purely  as  a  matter  of  accommodation 
to  Conrad  ;  that  Conrad  got  the  entire  benefit  of  the  proceeds  of  said 
note ;  and  that  he  (Carr)  was  never  benefited  one  cent  thereby ;  that 
in  no  event  can  he  be  considered  more  than  the  surety  of  Conrad  ;  that 
the  said  partnership  concern  of  plaintiff  and  said  Conrad  was,  and  is 
now,  entirely  solvent ;  that,  after  paying  all  its  debts  and  liabilities, 
there  will  be  a  surplus  left  in  the  hands  of  plaintiff  to  be  paid  over  by 
him   "to  Chas.   L.   Holland,  as  administrator  of   Chas.  H.  Conrad, 

deceased." 

In  addition  to  the  above  allegations  contained  in  defendant's  answer, 


6  4.]  FIRM   TITLE    AFTER   THE    DEATH    OF   A    PARTNER.  240 

he  makes  the  bill  of  complaint  of  plaintiff  in  the  court  of  Virginia,  in 
which  plaintiff  was  appointed  receiver,  and  his  reports  to  the  court 
therein  exhibits,  and  a  part  of  his  answer,  from  which  it  appears  that 
said  Conrad  at  the  time  of  his  death  had  $13,000  on  deposit  in  said 
banking-house  to  his  credit ;  that,  since  his  death,  820,000  life  in 
surance  has  been  collected,  and  is  now  on  deposit  in  s:iid  banking- 
house,  which  Conrad's  administrator  is  claiming,  but  plaintiff  is  claim- 
ing that  one-half  of  this  should  enure  to  the  benefit  of  the  linn  ;  and 
that  in  plaintiff's  report  as  receiver  to  the  court  of  Danville.  Ya.,  it  is 
shown  that  the  assets  of  this  partnership  amounted  to  $300,289.12; 
that  to  all  these  allegations  of  fact  contained  in  defendant's  answer  the 
plaintiff  makes  no  reply  or  denial.  Plaintiff  and  defendant,  in  addi- 
tion to  what  has  been  stated,  agree  upon  a  state  of  facts,  and  among 
them  are  the  following:  "  The  partnership  of  W.  F.  Patton,  Sons,  & 
Co.  [and  this  is  the  partnership  of  plaintiff  and  C.  H.  Conrad]  is  sol- 
vent, and  the  receivership  aforesaid  has  not  been  wound  up.  There  will 
be  a  surplus  in  the  settlement  of  the  receivership  affairs  of  W.  F. 
Patton,  Sons,  &  Co.  to  be  divided  between  the  plaintiff,  W.  F.  Patton, 
and  the  estate  of  C.  H.  Conrad,  deceased.  Said  C.  H.  Conrad  had 
$13,000  balance  deposited  to  his  credit  in  the  bank  of  W.  F.  Patton, 
Sons,  &  Co.  at  the  time  of  his  death.  His  estate  was  then,  and  still  is, 
solvent." 

That  defendant  indorsed  the  note  sued  on  for  the  accommodation  of 
C.  H.  Conrad,  and  Conrad  had  it  discounted  at  the  banking-house  of 
W.  F.  Patton,  Sons,  &  Co.,  of  which  Conrad  was  a  partner,  and  that 
Conrad  got  the  benefit  of  the  proceeds  of  the  note,  and  Carr  got  nothing 
from  the  transaction,  seem  not  to  be  disputed  as  facts.  This  in  no  view 
of  the  case  could  make  Carr  anything  more  than  the  suret}-  of  Conrad  ; 
and,  these  facts  all  being  known  to  Conrad,  the  partner  of  plaintiff,  in 
law  were  all  known  to  plaintiff.  1  Bates,  Partn.  §  389.  This  presents 
a  case  in  which  Conrad  was  both  pa}'er  and  paj'ee,  and,  so  far  as  Con- 
rad was  concerned,  never  constituted  what  is  known  as  a  "  lesal"  cause 
of  action.  Clement  v.  Foster,  3  Ired.  Eq.  213.  It  could  only  be  ad- 
justed by  the  partners  themselves,  or  in  equity,  upon  a  dissolution  and 
settlement  of  the  concern.  Neither  would  it  have  been  the  subject  of 
an  action  at  law  against  the  defendant  by  the  firm,  if  Conrad  were  still 
living,  as  the  note — the  cause  of  action  —  would  necessarily  disclose 
the  equity  of  the  case.  The  death  of  Conrad,  leaving  the  plaintiff  sur- 
vivor, does  not  change  the  law  of  the  case,  and  does  not  authorize  the 
plaintiff  to  bring  an  action  which  he  and  his  co-partner  would  not  have 
had  a  right  to  bring  if  he  were  living. 

We  think  the  plaintiff's  cause  of  action  —  the  note  sued  on  —  neces- 
sarily discloses  the  equitable  jurisdiction  of  the  case  ;  but,  if  it  does 
not,  it  is  certainly  raised  by  the  defendant's  answer,  and  must  be 
determined  upon  equitable  principles.  It,  therefore,  being  known  to 
plaintiff  that  this  is  in  fact  the  debt  of  his  partner,  C.  II.  Conrad,  and 
that  defendant,  at  most,  is  not  more  than  Conrad's  surety,  he  cannot 


250  THE    NATUKE    OF   A    PAETNERSHIP.  [CHAP.  III. 

maintain  this  action  against  this  defendant,  either  as  surviving  partner 
or  as  receiver,  without  alleging  and  showing  his  equities.  1  Bates, 
Partn.  §  750.  If  he  claims  to  sue  as  receiver,  he  should  allege  that 
Conrad's,  the  principal  debtor's,  estate  is  insolvent,  and  it  is  necessary 
to  resort  to  defendant,  Conrad's  surety,  for  the  benefit  of  creditors,  as 
creditors  have  no  interest  in  making  the  defendant  pay  Conrad's  debt 
if  the  firm  is  solvent,  which,  of  course,  includes  Conrad's  individual 
estate.  Nor  is  the  plaintiff,  as  survivor,  interested  in  making  the  de- 
fendant pa}T  Conrad's  debt  if  he  has  funds  of  Conrad  in  his  hands,  and 
partnership  assets,  sufficient,  and  more  than  sufficient,  to  pay  the  firm 
indebtedness,  and  to  pay  him  his  part  of  the  partnership  profits.  In- 
deed, it  would  be  unjust  and  inequitable  to  do  so  if  he  could.  .  .   . 

It  will  not  be  understood  from  what  we  have  said  in  discussing  the 
facts  of  this  case  that  a  survivor  may  not  ordinarily  sue  an  indorser, 
where  there  is  no  connection  of  the  principal  in  the  note  with  the 
partnership. 

There  is  error. 


MADDOCK'S   ADMX.   v.  SKINNER  et  al. 

93  Va.  479  :  25  S.  E.  535.     1896. 

Suit  in  chancery  by  Skinner,  for  himself  and  other  execution  credi- 
tors of  George  M.  Evans,  to  subject  Evans'  interest  in  the  late  partner- 
ship of  Maddock  &  Evans  to  the  payment  of  their  executions.  The 
bill  charged  that  there  was  a  fund  of  several  thousand  dollars,  in  the 
hands  of  certain  attorneys,  which  belonged  to  the  late  firm,  and  that 
J.  M.  Gambill  &  Co.  had  a  debt  against  the  firm,  but  not  "enough 
to  consume  the  firm  assets.  By  the  report  of  a  commissioner,  and  the 
decree  of  the  Hustings  Court,  the  Gambill  debt  was  to  be  paid  in 
full  out  of  the  firm  assets,  and  the  balance  to  be  divided  in  two  equal 
parts,  one  of  which  was  to  be  paid  to  Haddock's  administratrix,  and 
the  other  applied,  so  far  as  need  be,  to  the  payment  of  certain  execu- 
tions against  Evans. 

S.  Griffin,  for  the  appellant. 

Robert  JE.  Scott,  for  the  appellees. 

Riely,  J.  .  .  .  The  appellant  excepted  to  the  report  of  the  commis- 
sioner, because  he  allowed  the  claim  of  Gambill  &  Co.  as  a  subsisting  judg- 
ment against  Maddock  &  Evans,  without  any  proof  (it  was  alleged)  that 
there  was  such  a  judgment  against  the  firm,  and  because  the  evidence 
showed  that,  if  any  debt  was  due,  it  was  the  personal  debt  of  Evans, 
and  not  a  debt  of  the  firm.  The  court  overruled  the  exception,  confirmed 
the  report,  and  decreed,  as  we  have  seen,  the  payment  of  the  judgment 
out  of  the  assets  of  the  firm.  This  action  of  the  court  constitutes  the 
onky  other  assignment  of  error.  It  is  to  be  observed  that  the  excep- 
tion did  not  deny  that  there  was  such  a  judgment,  but  simply  claimed 


§  4.]  FIRM    TITLE    AFTER    THE    DEATH    OF    A    PARTNER.  251 

that  it  was  allowed  without  any  proof.  The  report  of  the  commissioner 
was  made  in  obedience  to  the  decree  of  the  court,  and,  except  for 
error  apparent  on  its  face,  it  was  to  be  taken  as  prima  facit  correct, 
unless  steps  were  taken  to  place  before  the  court  the  evidence  on 
which  it  was  based,  or  it  was  shown,  by  the  deposition  of  the  clerk 
of  the  court  in  which  the  judgment  was  alleged  to  have  been  recovered, 
or  otherwise,  that  there  was  no  such  judgment.  This  was  not  done. 
The  commissioner  stated  that  his  report  was  made  up  from  certain 
depositions,  and  "  from  the  records  of  the  clerk's  office  of  your  honor's 
court."  It  does  not  appear  that  he  was  directed  by  the  court,  or  re- 
quested by  the  appellant,  to  return  the  evidence  on  which  he  reported 
the  judgment.  It  was  not  his  duty  to  do  so,  unless  so  directed  or 
requested  ;  and,  the  appellant  not  having  taken  steps  to  bring  the 
evidence  before  the  court,  it  could  not  review  the  finding  of  the  com- 
missioner, and  the  exception  could  not  avail  her.  Shipman  v.  Fletcher, 
91  Va.  473,  478  ;  Saunders  v.  Prunty,  89  Va.  921  ;  Bowden  v.  Parish, 
86  Va.  67. 

It  appears  from  the  deposition  of  J.  M.  Gambill  that  Evans,  on 
account  of  his  indebtedness  to  the  firm  of  Maddock  &  Evans  for 
certain  mules,  carts,  and  tools  belonging  to  it,  had  assumed  to  pa}' 
the  debt  to  Gambill  &  Co.,  and  that  he  and  Maddock  approached 
the  latter  with  the  view  of  having  them  release  Maddock  from  the 
debt,  on  condition  that  Evans  would  secure  the  debt  by  a  deed  of  trust 
on  the  said  property,  which  was  worth  about  $2,000.  Gambill  &  Co. 
agreed  to  do  so,  upon  the  condition  being  complied  with.  Evans 
returned  the  next  day,  and  declined  to  give  the  deed  of  trust.  The 
desired  release  was  for  the  benefit  of  Maddock,  and  the  duty  was  upon 
him,  and  not  upon  Gambill  &  Co.,  to  see  that  Evans  complied  with 
the  condition  on  which  they  had  consented  to  release  him.  As  Evans 
refused  to  secure  the  debt  by  deed  of  trust,  the  firm  of  Maddock 
&  Evans  continued  liable  for  it. 

The  evidence  establishes,  however,  that  Evans  was  indebted  to  the 
partnership  for  the  mules,  carts,  and  tools,  and  that  he  had  assumed, 
on  account  of  such  indebtedness,  to  pay  the  judgment  of  Gambill  & 
Co.  The  partners  evidently  considered  that  the  interest  of  Maddock 
in  the  property  was  at  least  equal  to  the  amount  of  the  judgment,  and 
it  clearly  appears  that  the  share  of  Evans  in  the  undivided  assets 
is  sufficient  to  discharge  it.  If  the  judgment  has  now  to  be  paid 
out  of  the  assets  belonging  to  the  firm,  as  it  must  be,  then  Evans 
should  be  charged,  in  a  proper  settlement  of  the  partnership,  with 
Buch  an  amount,  for  the  mules,  carts,  and  tools,  as  would  make 
the  interest  of  Maddock  therein  equal  to  the  judgment,  or  (which 
is  the  same  thing,  and  prevents  circuity)  the  estate  of  Maddock  should 
receive  out  of  the  assets  of  the  firm,  after  the  payment  of  the  judgment, 
•  '  Bum  equal  to  the  amount  of  the  judgment,  so  as  to  adjust  properly 
iln'  accounts  of  the  partners  with  the  partnership  and  between  them* 
Belves,  before  there  is  any  division  of  the  assets  between  the  partners. 


252  THE    NATURE    OF   A   PARTNERSHIP.  [CHAP.  III. 

It  was  not  questioned  that,  ordinarily,  this  would  be  the  proper 
course  ;  but  it  was  contended  that,  inasmuch  as  individual  creditors 
of  Evans  had  obtained  judgments  against  him,  and  sued  out  execu- 
tions, they  thereb}'  acquired  a  lien  on  the  share  of  Evans  in  the 
assets  of  the  partnership  remaining  after  the  payment  of  the  debts  of 
the  firm  superior  to  the  right  of  Maddock  to  have  such  settlement 
of  the  accounts  between  the  partners  and  a  distribution  of  the  assets 
in  accordance  therewith. 

Partners  are  joint  tenants  of  the  property  of  the  partnership.  Neither 
partner  has  an  exclusive  right  to  any  part  of  the  property  until  all 
of  the  debts  of  the  partnership  are  paid,  including  the  debts  which 
may  be  due  from  the  partnership  to  either  of  the  partners.  The 
interest  of  each  partner  in  the  property  of  the  partnership  is  his  share 
of  the  surplus  after  all  the  firm  debts  are  paid  and  a  balance  of 
accounts  is  struck  between  the  partners.  It  is  thus  that  his  interest 
is  ascertained  ;  and  it  is  onby  this  interest,  so  ascertained,  that  is 
subject  to  the  lien  of  the  execution  or  attachment  of  an  individual 
creditor.  The  law  does  not  permit  the  separate  creditor  to  obtain 
more  than  the  partner,  who  is  his  debtor,  is  entitled  to.  Christian  v. 
Ellis,  1  Grat.  39G  ;  Diggs'  Adm'r  v.  Brown,  78  Va.  295  ;  Shackel- 
ford's Adm'r  v.  Shackelford,  32  Grat.  481 ;  Taylor  v.  Fields,  4  Ves. 
396;  Dutton  v.  Morrison,  17  Ves.  193;  Nicoll  v.  Mumford,  4  Johns. 
Ch.  522 ;  Buchan  v.  Sumner,  2  Barb.  Ch.  165 ;  Menagh  v.  Whit- 
well,  52  N.  Y.  146  ;  Phillips  v.  Cook,  24  Wend.  389  ;  Pierce  v.  Jack- 
son, 6  Mass.  242  ;  U.  S.  v.  Hack,  8  Pet.  271  ;  Maxwell  v.  City  of 
Wheeling,  9  W.  Va.  206  ;  Sirrine  v.  Briggs,  31  Mich.  443  ;  Smith  v. 
Evans,  37  Ind.  526.  See  also  Story,  Partn.  §§  261-263,  311;  2 
Colly.  Partn.  (6th  ed.)  §  793,  and  notes  thereto ;  1  Bart.  Ch.  Prac. 
618,  619  ;  and  3  Minor,  Inst.  (2d  ed.)  pt.  2,  p.  692. 

In  Pierce  v.  Jackson,  supra,  Parsons,  C.  J.,  said  :  "  At  common 
law,  a  partnership  stock  belongs  to  the  partnership,  and  one  partner 
has  no  interest  in  it,  but  his  share  of  what  is  remaining  after  all  the 
partnership  debts  are  paid,  he  also  accounting  for  what  he  may  owe 
the  firm.  Consequently,  all  the  debts  due  from  the  joint  fund  must 
first  be  discharged  before  any  partner  can  appropriate  any  part  of  it  to 
his  own  use,  or  pay  any  of  his  private  debts  ;  and  a  creditor  to  one  of 
the  partners  cannot  claim  any  interest  but  what  belongs  to  his  debtor, 
whether  his  claim  be  founded  on  any  contract  made  with  his  debtor, 
or  on  a  seizing  of  the  goods  on  execution."  In  Nicoll  v.  Mumford, 
supra,  Chancellor  Kent  said:  "The  interest  of  each  partner  is  his 
share  of  the  surplus,  subject  to  all  partnership  accounts;  and  that 
interest  or  surplus  only  is  liable  to  the  separate  creditors  of  such  part- 
ner, claiming  either  by  assignment  or  under  execution."  In  Menagh 
v.  Whitwell,  supra,  Rapallo,  J.,  said:  "Partnership  effects  cannot 
be  taken  by  attachment  or  sold  on  execution  to  satisfy  a  creditor 
of  one  of  the  partners,  except  to  the  extent  of  the  interest  of  such 
separate  partner  in  the  effects,  subject  to  the  payment  of  the  firm  debts 


S  4.]  FIRM   TITLE    AFTER   THE   DEATH   OF   A   PARTNER.  253 

and  settlement  of  all  accounts."  In  Atkins  v.  Saxton,  77  N.  Y.  195, 
199,  the  same  judge,  discussing  the  right  of  a  purchaser  of  the  interest 
of  a  partner  in  partnership  property  at  a  sale  under  an  attachment  or 
execution  against  such  partner  for  his  individual  debt,  said:  "He 
takes  it  subject  to  the  rights  of  the  co-partners  of  the  debtor  and  the 
creditors  of  the  firm,  and  subject  to  ad  accounting  which  may  disclose 
that  he  derived  no  beneficial  interest  from  his  purchase.  All  that 
he  can  ultimately  obtain  is  the  debtor's  share  of  such  surplus  as  may 
remain  after  payment  of  the  firm  debts  and  the  adjustment  of  the 
accounts  of  the  partners  as  between  themselves."  And  in  Haynes  v. 
Knowles,  36  Mich.  407,  410,  Campbell,  J.,  said:  "The  partner  not 
Bued  cannot,  on  any  principle  of  justice,  be  placed  in  any  worse  con- 
dition by  a  creditor  of  the  partner  than  he  could  have  been  by  his  own 
partner." 

It  was  error,  therefore,  in  the  Hustings  Court,  to  distribute  any  part 
of  the  share  of  George  M.  Evans  in  the  undivided  assets  of  the  partner- 
ship, remaining  after  satisfying  the  judgment  of  Gambill  &  Co.,  to  the 
separate  creditors  of  Evans,  until  the  payment  of  a  sum  equal  to  the 
amount  of  the  judgment  had  been  decreed  to  the  estate  of  Maddock, 
to  which  sum  he  was  entitled,  according  to  the  evidence,  out  of  the 
firm  assets,  on  account  of  the  indebtedness  of  Evans  to  the  partnership, 
and  which  the  latter,  in  the  lifetime  of  Maddock,  had  assumed  to 
pay.  Its  decree  must  therefore  be  reversed,  and  the  cause  remanded 
to  the  said  court,  with  directions  to  distribute  the  moneys  in  the  hands 
of  the  said  attorneys  upon  the  principles  herein  declared. 

Reversed. 


EMERSON  v.   SENTER  et  al. 

118  U.  S.  2.     1885. 

Harlan,  J.  The  court  below  proceeded  upon  the  ground,  in  part, 
that  a  sole  surviving  partner  of  an  insolvent  firm,  who  is  himself  insol- 
vent, cannot  make  a  valid  assignment  of  partnership  assets  for  the 
benefit  of  joint  creditors,  with  preference  to  some  of  them.  We  are 
unable  to  concur  in  this  view. 

Some  of  the  cases  hold  that  one  partner  cannot,  either  during  the 
continuance  of  the  partnership,  or  after  its  dissolution  by  agreement, 
make  such  an  assignment.  It  cannot,  however,  be  doubted  that,  in  the 
absence  of  a  statute  prohibiting  it,  such  an  assignment,  whether  during 
the  continuance  of  the  partnership,  or  after  its  dissolution  by  agree- 
ment, would  be  valid  when  the  partners  all  unite  in  executing  it,  or 
when  one  of  them  executes  it  by  the  direction  or  with  the  consent  of 
the  others.  Partnership  creditors  have  no  specific  lien  upon  the  joint 
funds  for  their  debts.  3  Kent,  Com.  65 ;  Story,  Partn.  §  •">">*.  They 
have  no  such  relations  with  the  partnership  as  entitles  them  to  inter- 


254  THE    NATUEE    OF   A   PARTNERSHIP.  [CHAP.  III. 

fere  with  the  complete  control  of  the  joint  property  by  the  partners 
during  the  existence  of  the  partnership,  or  with  the  right,  after  disso- 
lution by  agreement,  of  the  partnership  to  dispose  of  it  for  the  pay- 
ment of  their  joint  debts,  giving  such  preference  as  the}'  deem  proper. 

When  the  partnership  is  dissolved  by  the  death  of  one  partner,  the 
surviving  partner  is  entitled  to  the  possession  and  control  of  the  joint 
property  for  the  purpose  of  closing  up  its  business.  Wickliffe  v.  Eve,  17 
How.  467  ;  Shanks  v.  Klein,  104  U.  S.  18.  To  that  end,  and  for  the 
purpose  of  paying  the  joint  debts,  he  may,  according  to  the  settled 
principles  of  the  law  of  partnership,  administer  the  affairs  of  the  firm, 
and,  by  sale  or  other  reasonable  disposition  of  its  property,  make  pro- 
vision for  meeting  its  obligations.  He  could  not  otherwise  properly  dis- 
charge the  duty  which  rests  upon  him  to  wind  up  the  business,  and 
pay  over  to  the  representative  of  the  deceased  partner  what  ma}r  be 
due  to  him  after  a  final  settlement  of  the  firm  debts.  It  is  true  that,  in 
man}-  cases,  where,  for  instance,  the  surviving  partner  is  not  exercising 
due  diligence  in  settling  the  partnership  business,  or  is  acting  in  bad 
faith,  the  personal  representative  of  the  deceased  partner  may  invoke 
the  interference  of  a  court  of  equity,  and  compel  such  a  disposition  of 
the  partnership  effects  as  will  be  just  and  proper ;  this,  because,  as 
between  the  partners,  and,  therefore,  as  between  the  surviving  partner 
and  the  personal  representative  of  the  deceased  partner,  the  joint  assets 
constitute  a  fund  to  be  appropriated  primarily  to  the  discharge  of  part- 
nership liabilities,  though  not  necessarily,  and  under  all  circumstances, 
upon  terms  of  equality  as  to  all  the  joint  creditors.  But  while  the 
surviving  partner  is  under  a  legal  obligation  to  account  to  the  personal 
representative  of  a  deceased  partner,  the  latter  has  no  such  lien  upon 
joint  assets  as  would  prevent  the  former  from  disposing  of  them  for  the 
purpose  of  closing  up  the  partnership  affairs.  He  has  a  standing  in 
court  only  through  the  equitable  right  which  his  intestate  had,  as  be- 
tween himself  and  the  surviving  partner,  to  have  the  joint  property 
applied  in  good  faith  for  the  liquidation  of  the  joint  liabilities.  As 
with  the  concurrence  of  all  of  the  partners  joint  propertj"  could  have 
been  sold  or  assigned,  for  the  benefit  of  preferred  creditors  of  the 
firm,  the  surviving  partner  —  there  being  no  statute  forbidding  it  — 
could  make  the  same  disposition  of  it.  The  right  to  do  so  grows  out 
of  his  duty,  from  his  relations  to  the  property,  to  administer  the  affairs 
of  the  firm  so  as  to  close  up  its  business  without  unreasonable  delay  ; 
and  his  authorit}'  to  make  such  a  preference  —  the  local  law  not  for- 
bidding it— cannot,  upon  principle,  be  less  than  that  which  an  indi- 
vidual debtor  has  in  the  case  of  his  own  creditors.  It  necessarily 
results  that  the  giving  of  preference  to  certain  partnership  creditors 
was  not  an  unauthorized  exertion  of  power  by  Moores,  the  surviving 
partner.   .   .   .  Judgment  reversed} 

1  In  Williams  v.  Whedon,  109  N.  Y.  333  (1888),  it  is  said:  "The  survivors  do  not 
take  such  assets  as  trustees,  but,  as  survivors,  hold  the  legal  title  subject  to  such 
equitable  rights  as  the  representatives  have  in  the  due  application  of  the  proceeds.  .  .  . 


§  4.]  FIRM   TITLE   AFTER    THE   DEATH    OF   A   PARTNER.  255 


DEWEY   v.  CHAPIN   et  al. 

156  Mass.  35.     1S92. 

Kxowlton,  J.  The  master  found  that  the  partnership  property  sold 
by  the  defendant,  Charles  E.  Chapin,  the  surviving  partner,  was  worth 
at  the  time  of  the  sale  84.729,  although  it  brought  at  auction  only 
82.571.90.  This  was  a  finding  of  fact  to  which  no  exception  was 
taken,  and  it  appears  to  have  been  well  supported  by  the  evidence.  If 
the  sale  had  been  made  in  good  faith,  and  in  the  exercise  of  a  sound 
discretion,  the  partner  making  it  would  have  been  chargeable  only  for 
the  proceeds  of  it.  But  it  was  his  duty  to  obtain  for  the  property  all 
that  he  reason  ably  could,  for  the  benefit  of  the  executor  of  his  deceased 
co-partner,  as  well  as  for  himself,  and  while  he  held  the  legal  title,  he 
held  it  subject  to  a  kind  of  trust  which  equity  will  enforce  in  favor  of 
those  interested  in  it.  About  a  month  before  the  sale,  he  had  obtained 
a  lease  of  the  place  where  the  property  was  being  used,  which  had  pre- 
viously been  occupied  by  the  firm,  and  there  was  no  sale  or  offer  of  sale 
of  the  good  will  at  the  auction,  or  of  an}'  rights  to  remain  on  the 
premises,  or  to  retain  the  plant  and  equipment  there.  He  made  the 
sale  to  his  sou,  and,  when  it  was  completed,  entered  into  partnership 
with  him,  and  continued  to  conduct  the  same  business,  using  the  same 
plant  and  equipment  at  the  same  place.  These  facts  warranted  the 
finding  of  the  master  that  the  defendant,  Charles  E.  Chapin,  did  not 
exercise  good  faith  and  sound  discretion  in  endeavoring  to  obtain  for 
the  partnership  property  as  much  as  he  reasonably  could,  and  he  is 
therefore  chargeable  with  what  he  ought  to  have  got  for  it. 

The  defendant,  Charles  T.  Chapin,  was  not  a  co-partner  in  the 
original  firm,  and  is  not  accountable  for  any  part  of  the  assets  of  it, 
unless  he  became  so  through  his  purchase  at  the  auction  sale.  The 
master  finds  that  "  neither  fraud  nor  unfair  dealing  is  imputable  to 
him  in  that  purchase,"  and  that  "  the  title  passed  to  him  ;  "  but  he  also 
finds  "  that  his  relations  both  to  the  deceased  and  surviving  partner 
subject  him  to  any  equity  enforceable  against  the  latter,  and  prevent 
his  claiming  to  hold  the  plaintiff's  property  as  a  purchaser,  without 
notice,  for  the  price  it  was  sold  to  him."  This  last  finding  does  not 
enable  the  plaintiff  or  the  other  defendant  to  recover  of  him,  on  account 
of  his  purchase,  anything  more  than  the  purchase  price,  and  does  not 
put  him  in  the  position  of  the  surviving  partner,  who  is  accountable  for 

It  was  never  in  the  contemplation  of  the  contract  of  partnership  that  strangers,  as  the 
representatives  of  a  deceased  partner  are,  should  have  a  voice  in  the  determination  <>f 
questions  relating  to  the  distribution  of  the  firm  assets  among  its  creditors.  They 
have  the  right  to  require  them  to  he  applied  upon  the  firm  debts,  but  if  they  are  insuffi- 
cient to  pay  such  debts  in  full,  they  have  no  interest  in  the  question,  whether  the 
deficiency  shall  be  payable  to  one  creditor,  rather  than  another.  ...  If  the  firm  is 
insolvent,  neither  the  assent  of  the  representative,  nor  the  statute  regulating  the  dis- 
tribution of  a  deceased  person's  estate,  can  legally  affect  the  power  of  a  survivor 
to  make  such  assignment." 


256  THE  NATURE  OF  A  PARTNERSHIP.       [CHAP.  III. 

the  partnership  assets  at  the  price  which  he  ought  to  have  obtained  for 
them.  The  allegations  of  the  bill  and  the  findings  of  the  master  put 
his  liability  soleby  on  the  ground  of  his  purchase.  The  plaintiff,  in  his 
case  against  Charles  E.  Chapin,  seeks  to  hold  him  on  the  ground  that, 
by  the  sale,  he  made  a  final  disposition  of  the  property,  and  so  made 
himself  accountable  for  its  value.  The  claim  against  him  is  incon- 
sistent with  an  attempt  to  pursue  the  assets  be}ond  him,  and  to 
recover  them  from  Charles  T.  Chapin.  If  the  plaintiff  charged  an 
improper  and  fraudulent  sale  by  Charles  E.  Chapin,  and  asked  on  that 
account  for  the  appointment  of  a  receiver,  and  showed  that  Charles  T. 
Chapin  bought  with  notice  of  the  plaintiff's  equities,  and  that  the  sale 
could  not  properly  be  made,  it  might  well  be  that  a  receiver  could  be 
authorized  to  take  the  property  out  of  Charles  T.  Chapin's  hands,  or 
that  he  could  be  compelled  to  pay  the  value  of  it  if  he  had  sold  it  to 
an  innocent  purchaser  or  otherwise  disposed  of  it.  But  under  this  bill 
we  are  of  opinion  that  no  recover}'  can  be  had  against  him,  and  that 
Charles  E.  Chapin  is  liable  to  the  plaintiff  for  the  whole  amount  found 
due  him  by  the  master.  Decree  accordingly. 


PECKHAM,   J.,   in  RUSSELL  v.   McCALL  et  al. 

141  N.  Y.  437:  36  N.  E.  498.     1894. 

The  defendant  claims  that  the  executrix  of  Miss  Russell,  by  commenc- 
ing her  action  against  the  surviving  partner  to  recover  the  decedent's 
share  of  the  partnership  assets,  and  in  prosecuting  the  same  to  judg- 
ment, is  barred  from  suing  the  surviving  partner  again,  and  joining 
with  him  Mrs.  McCall,  upon  the  same  cause  of  action.  It  is  now 
asserted  by  counsel  for  defendant  .McCall  that  when  the  other  action 
was  commenced  the  executrix  knew  all  the  facts  connecting  McCall 
with  the  misuse  or  misappropriation  of  the  assets  of  the  partnership. 
.  .  .  For  the  further  discussion  of  this  point,  we  will  assume  full  knowl- 
edge on  the  'part  of  the  executrix  of  all  the  facts  at  the  time  she 
commenced  her  action  against  the  survivor.  In  that  case,  we  think 
there  was  no  election  of  inconsistent  remedies  such  as  should  bar  this 
action. 

Upon  the  death  of  Miss  Russell,  the  surviving  partner,  Moschowitz, 
had  certain  powers,  rights,  and  obligations  granted  to  and  placed  upon 
him  by  reason  of  such  death.  He  had  the  legal  title  to  the  assets,  and 
he  held  them  as  the  legal  owner,  and  not  as  trustee,  in  the  strict  sense 
of  that  term.  In  equity,  however,  he  was  to  be  regarded,  to  some 
extent,  as  a  trustee  ;  and  his  dut}T  was  to  pa}T  the  debts,  and  dispose 
of  the  assets  of  the  partnership  for  the  benefit  of  himself  and  the  estate 
of  the  deceased  partner.  Case  v.  Abeel,  1  Paige,  393  ;  Williams  t. 
Whedon,  109  N.  Y.  333  ;  Preston  v.  Fitch,  137  N.  Y.  41,  56. 

The  position  is  somewhat  anomalous,  —  not  exactly  and  wholly  a 


§  4.]  FIRM   TITLE   AFTER   THE   DEATH   OF    A    PARTNER.  257 

trustee,  and  yet  not  a  full  owner  of  the  assets  which  he  takes  or  retains 
possession  of  by  reason  of  survivorship.  The  duties  spoken  of  he  owes 
the  estate  of  the  deceased  partner ;  and  when,  instead  of  gathering  in 
the  assets,  paying  the  debts,  winding  up  the  business,  and  distributing 
the  surplus,  he  misappropriates  the  same,  and  converts  them  to  his 
own  use.  and  that  of  others  with  him,  he  is  so  far  guilty  of  a  breach  of 
trust  that  a  court  of  equity  will,  when  called  upon,  intervene  and  give 
appropriate  relief.  This  was  the  object  of  the  first  action.  The  court 
was  asked  to  decree  an  accounting,  and,  as  a  ground  for  the  request,  it 
was  alleged  that  the  defendant  was  violating  his  duty,  converting  the 
assets  to  his  own  use  in  his  own  business,  and  failing  to  apply  them  to 
the  payment  of  the  debts  of  the  partnership.  Judgment  was  asked  for 
the  amount  which  might  be  found  due  upon  such  accounting.  .   .   .. 

But  this  kind  of  a  judgment  is  not  in  the  least  inconsistent  with  the 
right  to  pursue  other  wrongdoers,  who,  by  intermeddling  with  the  prop- 
erty and  assets  of  the  estate,  have  rendered  themselves  liable  as 
trustees  cle  son  tort  for  the  wrong  done.  1  Perry,  Trusts,  §  245  ; 
Floekton  v.  Bunning,  reported  in  note  to  Vyse  v.  Foster,  8  Ch.  App. 
309,  at  323  ;  Lindl.  Partn.  531. 

The  survivor  of  the  partnership  did  not  become  the  full  and  absolute 
owner  of  its  assets,  upon  the  entry  of  the  personal  judgment  against 
him,  nor  was  there  any  election  on  the  part  of  the  plaintiff,  b}-  reason 
of  that  fact,  to  look  only  to  the  one  wrongdoer,  when  there  were  others 
equally  liable.  If  the  personal  judgment  were  paid,  then,  indeed,  the 
plaintiff's  rights  and  equities  in  the  property  would  be  changed,  and  he 
would  be  precluded  from  any  further  claim  upon  it.  Until  satisfaction 
of  that  judgment,  however,  the  plaintiff  could  not  be  barred  from  fur- 
ther efforts  to  obtain  relief  against  other  wrongdoers.  .  .  .  That 
AlcCall,  by  taking  this  property,  and  applying  it,  with  the  surviving 
partner,  to  his  own  uses,  with  knowledge  of  its  character,  and  without 
paying  any  consideration  therefor,  can  be  properly  treated  as  a  wrong- 
doer and  trustee  cle  son  tort,  and  be  made  liable  in  an  equitable  action 
for  his  acts,  is,  as  it  seems  to  me,  undoubted.  Vyse  v.  Foster,  8  Ch. 
App.  309,  323  ;  Floekton  v.  Bunning,  note  to  above  case,  at  page  323  ; 
Perry,  Trusts,  §  245  ;  Hooley  v.  Gieve,  9  Abb.  N.  C.  8  ;  In  re  Jordan, 
2  Fed.  319  ;  2  Pom.  Eq.  Jur.  1079. 


GALBRAITH  et  al.   v.  TRACY  et  al. 

153  111.  54:  38  N.  E.  937.     1894. 

Baker,  J.  For  a  number  of  years  Jesse  Kemp  and  John  J.  Kemp 
carried  on  the  business  of  raising  and  dealing  in  live  stock  in  partner- 
ship. The  stock,  machinery,  implements,  and  other  personal  property 
employed  in  such  business  were  partnership  property.     The   100  acrea 

17 


258  THE    NATURE    OF    A   PARTNERSHIP.  [CHAP.  III. 

of  land  on  which  the  business  was  conducted  stood  in  their  joint  and 
joined  names,  and  was  presumably  purchased  for  the  purposes  of  the 
partnership  business,  and  seems  to  have  been  used  and  regarded  by 
them  as  partnership  property.  When  John  J.  Kemp  died,  Jesse  Kemp, 
the  surviving  partner,  became  a  trustee  in  respect  to  the  property  and 
assets  of  the  late  partnership.  In  equity,  a  surviving  partner  is  treated 
as  a  trustee,  with  the  fiduciary  relation  of  trustee  and  cestuis  que 
trustent  existing  between  him  and  the  representatives  of  the  deceased 
partner.  There  is  a  conflict  in  the  authorities  upon  this  point,  but  in 
this  State  the  law  is  as  stated.  Nelson  v.  Hayner,  66  111.  487  ;  17  Am. 
&  Eng.  Enc.  Law,  pp.  1154,  1155,  and  cases  cited  in  notes.  Jesse 
Kemp,  the  surviving  partner,  filed  in  the  county  court  an  inventory  of 
the  real  and  personal  estate  of  the  late  partnership  under  oath,  and  in 
it  was  a  schedule  of  the  lands  here  in  question.  Then  Jesse  Kemp 
died,  and  Franklin  Galbraith  became  administrator  of  his  estate,  and 
assumed  and  undertook  the  administration  of  the  trust  in  respect  to  the 
partnership  property.  Among  other  things,  he  reported  to  the  county 
court  that  there  was  "  property  in  his  hands  of  the  late  firm  of  John  J. 
and  Jesse  Kemp,  of  which  partnership  said  Jesse  Kemp  was  the  sur- 
vivor," and  he  applied  for  and  obtained  an  order  for  the  sale  of  all  the 
personal  property  contained  in  the  inventory  and  appraisement  bill, 
stating  it  was  the  property  "  of  said  late  firm  ;  "  and  he  realized  from 
the  sale  thus  made  the  sum  of  $1,341.12. 

In  the  event  of  the  death  of  both  the  partners  before  the  settlement 
of  the  partnership  affairs,  the  administrator  of  the  last  survivor  stands 
in  the  shoes  of  his  intestate,  and  he  is  charged  with  the  duty  of  com- 
pleting the  settlement  as  a  trustee,  the  relation  between  him  and  the 
legal  representatives  of  the  partner  first  deceased  being  that  of  trustee 
and  cestuis  que  trustent.  Dayton  v.  Bartlett,  38  Ohio  St.  357  ;  Thom- 
son v.  Thomson,  1  Bradf.  Sur.  24;  Brooks  v.  Brooks,  12  Heisk.  12;  17 
Am.  &  Eng.  Enc.  Law,  1158.  In  equity  the  real  estate  of  a  partner- 
ship is  regarded  as,  and  stands  on  the  same  footing  with,  personal 
property,  no  matter  in  whom  the  legal  title  may  be  vested.  Bopp  v. 
Fox,  63  111.  540  ;  Simpson  v.  Leech,  86  111.  286  ;  Trowbridge  v.  Cross, 
117  111.  109  ;  Alkire  v.  Kahle,  123  111.  496.  But  whatever  remains  of 
it  after  the  partnership  debts  shall  have  been  discharged  is  held  in 
common  by  the  heirs,  subject  to  dower,  or  goes  to  the  devisees.  Strong 
v.  Lord,  107  111.  25. 

It  is  urged  that  Franklin  Galbraith,  administrator  of  Jesse  Kemp, 
took  no  interest  in  the  lands,  only  a  power  to  sell  them  for  the  payment 
of  debts,  and  that,  therefore,  no  duty  devolved  upon  him  to  redeem  the 
lands  from  the  sales  made  by  the  master  in  chancery,  and  that  after 
the  expiration  of  the  time  allowed  by  law  for  the  redemption  of  the 
lands  to  the  widows  and  children  of  Jesse  Kemp  and  John  J.  Kemp,  if 
not  before,  he  had  the  right  to  purchase  the  certificate  of  sale  or  buy 
the  lands.  This  claim  is  inconsistent  with  the  position  he  occupied  as 
trustee  in  respect  to  the  partnership  property.     Besides  this,  it  was 


§  4.]  FIRM    TITLE    AFTER   THE    DEATH    OF    A    PABTNEE.  259 

expressly  held  in  McCreedy  v.  Mier,  64  111.  495,  that  an  administrator 

is  not  a  stranger  in  all  respects  to  the  real  estate  of  his  intestate  ;  that 
it  is  under  some  circumstances  his  duty  to  redeem  from  a  sheriffs  sale  ; 
and  that  under  the  facts  of  that  case  he  became  trustee  for  the  heirs. 
The  case  was  quite  like  the  case  at  bar.  The  administrator  procured 
an  assignment  of  the  certificate  of  purchase  to  be  made  to  his  brother. 
This  court  said  :  "  It  is  plain  that  the  same  principle  which  forbids  him 
to  become  a  purchaser  at  a  sale  under  order  of  court  must  forbid  him 
to  bin'  on  his  own  account  a  certificate  of  purchase  given  by  the  sheriff 
or  master  on  a  sale  made  in  the  lifetime  of  the  deceased." 

It  is  urged  that  only  81,341.12  came  to  the  hands  of  Franklin  Gal- 
braith,  the  administrator,  in  money  ;  that  such  sum  was  wholly  insuf- 
ficient to  redeem  from  the  83,000  mortgage,  the  two  $500  mortgages, 
and  pay  the  claims  against  the  estate,  and  costs  and  expenses  of 
administration.  The  160  acres  in  section  34  sold  for  81,241  ;  the 
other  four  tracts  were  sold  separately,  —  one  for  81,780,  one  for  8324, 
one  for  8670,  and  one  for  81,340  ;  and  in  order  to  redeem  one  tract  it 
was  not  necessary  to  redeem  all.  The  total  sum  called  for  by  the  five 
certificates  of  purchase  was  84,907.69.  Deducting  therefrom  the 
81.341.12  in  money  would  leave  only  83,566.57,  plus  interest  to  time 
of  redemption,  to  be  arranged  for  in  order  to  redeem  all  the  land  from 
the  mortgage  sales.  The  lands  were  worth  from  812,000  to  814,000,  a 
value  more  than  three  times,  and  almost  four  times,  the  amount  of  the 
required  sum.  It  is  almost  certain  that  Galbraith,  with  the  business 
and  financial  ability  that  this  record  indicates  that  he  possessed,  could 
readily  have  arranged  through  the  unsecured  creditors,  or  otherwise,  to 
save  the  whole  or  some  portion  of  the  400  acres  of  land  to  the  two 
widows  and  their  children,  if  he  had  felt  so  inclined.  As  for  the 
widows  and  children,  they  had  no  money  or  means  or  business  capacity. 
Even  if  it  should  be  said  that  the  record  does  not  justify  these  surmises 
and  conclusions,  yet  that  would  make  no  difference  in  the  decision  of 
this  case.  A  trustee  is  not  allowed  to  put  himself  in  a  position  in 
which  to  be  honest  must  be  a  strain  on  him.  Staats  v.  Bergen,  17 
N.  J.  Eq.  554;  Tyler  v.  Sanborn,  128  111.  136.  The  very  next  day 
after  the  right  of  the  widows  and  heirs  to  redeem  from  the  sales  under 
the  83,000  mortgage  had  expired,  the  trustee  purchased  the  four  certi- 
ficates of  purchase  from  Moir,  and  immediately  upon  the  expiration 
of  the  statutory  15  months  he  received  a  deed  from  the  master  in 
chancer}-,  and  at  once  took  possession  of  the  240  acres  of  land.  In 
the  county  court  he  waived  process,  and  entered  his  appearance,  and 
raised  no  objections,  and  allowed  judgments  to  be  entered  on  the  Moir 
and  Peterson  claims.  Then  Moir  and  Peterson  redeemed  the  160  acres 
in  section  34  from  Priscilla  Trimmer,  and,  there  being  no  bid  over  and 
above  the  redemption  money,  the}*  forthwith  received  the  deed  from  the 
sheriff.  That  deed  bears  date  December  5,  1885  ;  and  nine  days  there- 
after, on  December  14,  1885,  they  conveyed  to  Galbraith,  the  trustee, 
In:  paying  the  amount  of  the  redemption  money,  and  the  amounts  of 


260  THE    NATURE    OF   A   PARTNERSHIP.  [CHAP    III. 

their  respective  claims  against  the  Kemps.  As  a  matter  of  course,  this 
whole  thing  was  prearranged.  It  cannot,  in  reason,  be  deemed  other- 
wise. We  forbear  to  enter  into  an}'  discussion  of  the  evidence  tending 
to  prove  that  Galbraith  and  others  took  steps  to  prevent  any  competi- 
tion at  the  sale  made  by  the  sheriff,  and  other  like  matters.  Galbraith, 
the  trustee,  got  the  whole  of  the  lands  at  just  half  of  their  then  actual 
value.  It  is  unnecessary  to  consider  much,  if  an}1,  of  the  oral  testimony 
that  was  taken  at  the  hearing  other  than  that  in  regard  to  values.  The 
quiet  records  of  the  county  and  circuit  courts,  and  those  that  rest  in  the 
recorder's  office,  though  they  are  dumb,  yet  they  speak ;  and  they 
establish  the  cases  of  the  complainants  in  the  two  cross  bills.  .   .   . 

Affirmed.1 


RICHARDSON  et  al.  v.   REDD   et  al. 

118  N.  C.  677:  24  S.  E.  420.     1896. 

Furches,  J.     A.  J.  Boyd,  S.  H.  Boyd,  G.  D.  Boyd,  and  Mr*.  T.  A. 

Richardson  were  the  individual  members  composing  the  partnership  of 
the  Boyd  Manufacturing  Company.  A.  J.  Bojd  is  dead,  and  the  part- 
nership is  insolvent.  The  Bank  of  Reidsville  has  recovered  a  judg- 
ment against  the  concern  for  a  partnership  debt,  sued  out  execution, 
and  is  trying  to  enforce  its  collection  by  a  sale  of  the  partnership  prop- 
erty. S.  H.  Boyd  and  G.  D.  Boyd  each  claim  their  personal  property 
exemptions  out  of  the  partnership  effects,  and  have  each  assented  to 
the  other's  doing  so.  But  Mrs.  Richardson  and  the  administrator  of 
the  deceased  partner  object,  and  the  question  is,  can  S.  H.  Boyd  and 
G.  D.  Boyd  take  their  personal  property  exemptions  out  of  the  part- 
nership effects,  against  the  consent  of  Mrs.  Richardson  and  the  admin- 
istrator, Redd?  It  has  been  repeatedly  held  by  this  court  that  one 
partner  is  not  entitled  to  this  exemption  without  the  consent  of  his  co- 
partners. Stout  v.  McNeill,  98  N.  C.  1 ;  Scott  v.  Kenan,  94  N.  C. 
296;  Burns  v.  Harris,  67  N.  C.   140. 

1  In  Needhamr.  "Wright,  140  Ind.  190:  39  N.  E.  510  (1895),  it  is  said  :  "Neither  was 
the  plea  correct  in  concluding  that  on  the  dissolution  of  a  partnership,  whether  by- 
death  or  otherwise,  the  partners  become  tenants  in  common  of  the  partnership  prop- 
erty. It  is  true  that  in  Stair  v.  Richardson,  108  Ind.  429,  there  is  an  inadvertent 
expression  to  the  effect  that,  '  after  dissolution,  former  members  are  tenants  in  com- 
mon.' The  statement  was  unnecessary  to  the  decision  of  that  case.  Surviving 
partners  are  rather  joint  tenants  than  tenants  in  common.  They  are  trustees  for  the 
winding  up  of  the  affairs  of  the  partnership,  and  all  the  property  of  the  firm  goes  to 
the  survivors  pending  settlement.  It  is  only  after  payment  of  all  debts  and  obligations 
of  the  firm  by  the  surviving  partners  that  the  residue  is  distributed  to  the  several 
members  and  to  the  representatives  of  deceased  members.  Bates,  Partn.  §§  183,  685- 
687.  See  also  Roberts  v.  McCarty,  9  Ind.  16;  Nicklaus  v.  Dahn,  63  Ind.  87;  Rail- 
way Co.  v.  Adamson,  114  Ind.  282.  It  is  only  by  the  appointment  of  a  receiver  that 
the  settlement  of  partnership  affairs  can  be  taken  out  of  the  hands  of  the  surviving 
partners." 


§  4.1  FIRM   TITLE    AFTER   THE   DEATH   OF   A   PARTNER.  261 

These  authorities  dispose  of  the  case,  unless  there  is  some  reason  for 
distinguishing  it  from  the  cases  cited.  This  the  defendants  S.  H.  and 
G.  D.  Boyd  undertake  to  do  by  saying  that  A.  J.  Boyd  is  dead  and 
cannot  claim  his  exemption,  nor  can  he  give  his  assent  to  their  doing 
so,  and  that  Mrs.  Richardson  is  a  married  woman  now,  and  was  at  the 
time  of  the  formation  of  this  partnership,  and  was  not  and  is  not  a  free 
trader  ;  that  on  account  of  this  disability  she  was  not  then,  and  is  not 
now,  capable  of  contracting  ;  that,  this  being  so,  her  individual  estate 
needs  no  protection  against  the  creditors  of  the  partnership  ;  that  in 
fact  she  is  not  a  partner,  and  never  has  been,  although  she  put  $5,000 
in  the  concern,  and  was  considered  and  treated  as  a  partner.  It  does 
not  become  necessary  that  we  should  determine  the  relation  of  Mrs. 
Richardson  to  this  concern,  further  than  to  saj-  that  it  appears  from 
the  case  that  she  put  $5,000  into  the  partnership,  and  must  have  some 
interest,  and  it  hardly  lies  in  the  mouths  of  those  who  have  dealt  with 
her  as  a  partner  to  set  up  her  coverture  for  their  benefit. 

We  have  discussed  Mrs.  Richardson's  relation  more  than  was  neces- 
sary, for  the  purpose  of  showing  that  the  reasoning  of  defendants,  as 
to  why  she  need  not  object,  that  she  needs  no  protection  for  her  indi- 
vidual estate  against  the  creditors  of  the  firm,  does  not  appl}-  to  the 
estate  of  A.  J.  Boyd.  And,  when  it  comes  to  a  consideration  of  his 
interest,  it  is  contended  that  his  estate  cannot  be  protected,  because  he 
is  dead,  and  can  neither  object  nor  assent.  This  is  a  right  ingenious 
way  of  working  the  thing  out.  But  it  would  be  "to  stick  in  the  bark," 
and  to  abandon  the  principle  upon  which  the  rule  has  been  established, 
to  sustain  the  contention  of  these  defendants,  that,  although  the  part- 
nership was  dissolved  by  the  death  of  A.  J.  Boyd,  still  his  estate  (his 
administrator)  has  the  same  interest  in  its  effects,  and  is  under  the 
same  obligation  to  its  creditors,  that  A.  J.  Boyd  was  when  living. 

And  if  the  rule  was  founded  upon  the  principle  of  equitable  lien  that 
a  partner  has  in  the  partnership  effects,  as  is  stated  in  Stout  v.  Mc- 
Neill, supra,  the  estate  (the  administrator  of  A.  J.  Boyd)  is  as  much 
interested  in  having  the  partnership  assets  applied  to  the  satisfaction 
of  the  partnership  debts  as  A.  J.  Boyd  would  be  if  living.  So  it  is 
plain  to  see  that  the  reason  of  the  thing  is  against  the  claim  of  these 
defendants.  But  if  we  should  not  be  governed  b}-  the  reason  and 
spirit  of  the  law,  as  we  think  we  should,  but  conclude  to  "  stick  in  the 
bark,"  and  be  governed  b\'  the  letter  of  the  law,  we  find  these  defend- 
ants in  no  better  condition.  The  rule  is  that  the)-  are  not  entitled  to 
this  exemption  "  without  the  consent  of  the  other  partner  or  partners," 
and  it  is  certain  that  A.  J.  Boyd  has  not  given  his  consent  to  the 
allowance  of  these  exemptions.  The  defendants  S.  H.  Boyd  and  G.  D. 
Boyd  are  not  entitled  to  the  exemptions  claimed. 

Affirmed 


262  THE    NATURE    OF    A    PARTNERSHIP.  [CHAP.  III. 

LINDNER   v.   ADAMS    COUNTY   BANK   et   al. 

49  Neb.  735:  68  N.  W.  1028.     1896. 

Irvine,  C.     The  record  in  this  case  discloses  that  the  Adams  County 
Bank  brought  the  action  against  Abraham  Loeb  and  wife,  Lindner,  the 
administrator,  Rosa   Hirsch,   the    widow,    and    Benjamin    and   Jacob 
Hirsch,  the  heirs,  of  Samuel  Hirsch,  deceased,  to  foreclose  a  mortgage 
executed  by  Loeb  and  Samuel  Hirsch  in  favor  of  the  bank.     The  case 
proceeded  to  foreclosure  and  sale,  and  after  satisfying  the  bank's  debt 
there  remained  a  large  surplus,  one-half  of  which  was  afterwards,  by 
the  court,  ordered  paid  to  the  guardian  of  the  heirs  of  Samuel  Hirsch. 
The  present  controversy  relates  to  the  disposition  of  the  remainder  of 
the  surplus,  it  being  claimed  on  one  hand  b}-  an  assignee  of  Loeb,  and 
on  the  other  hand  by  the  administrator  of  Hirsch.     The  district  court 
made  an  order  directing  its  payment  to  William  Kerr,  the  assignee  of 
Loeb.     This  order  was  made  on  consideration  of  the  application  and 
the  record  in  the  case,  without  evidence  ;  and  the  question  presented 
for    review   is    substantially,    therefore,    whether    the    administrator's 
application,  taken  in  connection  with  facts  established  by  the  record, 
was  sufficient,  if  the  allegations  contained  in  the  application  were  true, 
to  entitle  him  to  the  unpaid  surplus.     The  application  alleges,  in  brief, 
that  Loeb  and  Samuel  Hirsch  were,  in  the  latter's  lifetime,  partners, 
and  that  the  real  estate  sold  under  the  decree  of  foreclosure  was  part- 
nership property  ;  that,  after  the  death  of  Hirsch,  Loeb  collected  the 
rents  and  profits  of  the  real  estate,  and  continued  to  carry  on  the  busi- 
ness and  collect  debts  due  the  partnership,  but  failed  to  pay  the  debts 
of  the  partnership,  and  had  refused  to  apply  moneys  coming  into  his 
hands  for  the  purpose  of  discharging  such  debts,  but  had  converted  the 
partnership  property  to  his  own  use  ;  that  the  partnership  owned  prop- 
erty largely  in  excess  of  its  liabilities  ;  that  Loeb  is  insolvent ;  that,  on 
an  accounting  between  Loeb  and  Hirsch's  administrator,  Loeb  would 
be  indebted  to  the  latter  in  at  least  $3,000. 

In  the  briefs  many  questions  are  discussed  with  regard  to  the  rights 
of  surviving  partners,  and  the  propriety  of  an  examination  into  their 
transactions,  and  an  accounting,  in  a  proceeding  of  this  character. 
We  think,  however,  a  single  principle  controls  the  decision  of  the  case. 
The  assignment  of  the  surplus  arising  from  the  sale  from  Loeb  to  Kerr 
was  made  before  the  sale  was  confirmed.  It  recites  a  consideration  of 
$1,250  paid  by  Kerr  to  Loeb.  Its  legal  effect  was  as  an  assignment 
of  a  chose  in  action  belonging  to  a  partnership,  by  the  surviving  part- 
ner, to  a  stranger.  Neither  by  any  averment  in  the  administrator's 
application  for  the  surplus,  nor  elsewhere  in  the  record,  is  the  bona 
fides  or  consideration  of  this  assignment  attacked.  On  the  dissolution 
of  a  partnership  by  the  death  of  one  of  the  partners,  the  partnership 
property  vests  in  the  survivor,  in  trust,  it  is  true,  for  the  settlement 
and   winding  up  of  the  partnership  business,   but   nevertheless   with 


8  4.]  FERM    TITLE    AFTER    THE    DEATH    OF    A    TAIiTNER.  263 

power  of  disposition  for  that  purpose  ;  and  the  surviving  partner  may, 
in  such  case,  convey  or  transfer  the  property  to  a  stranger,  who  will 
take  title  by  virtue  of  such  conveyance  or  transfer.  Fitzpatrick  /•. 
Flannagan,  106  U.  S.  648.  Not  only  may  tangible  property  be  so 
transferred  by  a  surviving  partner,  but  also  choses  in  action.  Johnson 
r.  Berlizheimer,  84  111.  54  ;  Roys  r.  Vilas,  18  Wis.  109  ;  Daby  v.  Erics- 
son, 45  N.  Y.  786  ;  Bolder  v.  Tappan,  1  Fed.  409.  It  follows  from 
this  principle  that  the  assignment  by  Loeb,  the  surviving  partner,  to 
Kerr  of  any  surplus  that  might  remain  after  satisfying  the  decree  in 
favor  of  the  bank  (such  assignment  being  unimpeached)  operated  to 
transfer  the  right  of  the  partnership  to  such  fund  to  Kerr,  and  it  re- 
mained no  longer  a  partnership  asset.  So  that  the  question  as  to 
whether,  in  the  absence  of  such  an  assignment,  an  accounting  might 
be  had  in  this  action  between  the  surviving  partner  and  the  personal 
representative  of  the  deceased  partner,  and  the  surplus  distributed  in 
accordance  with  the  result  of  such  accounting,  is  not  material  to  the 
present  case. 

A  case  much  in  point  is  "Willson  v.  Nicholson,  61  Ind.  241.  That 
was  an  action  on  a  promissory  note  made  to  a  partnership,  which  had 
been  assigned  b}_  delivery  to  the  plaintiff  b3'  the  surviving  partner. 
Certain  creditors  of  the  partnership  had  filed  counterclaims,  alleging 
insolvency  of  the  firm  and  of  all  its  members,  and  that  the  note  in  suit 
constituted  the  firm's  only  assets,  and  that  the  plaintiff  had  purchased 
it  with  full  knowledge  of  the  facts.  The}'  prayed  that  the  proceeds  of 
the  instrument  should  be  applied  to  the  payment  of  their  claims.  The 
supreme  court  affirmed  the  action  of  the  trial  court  in  striking  out  the 
counterclaims,  on  the  ground  that  the  surviving  partner  succeeded  to 
the  assets,  and  had  the  right  to  dispose  thereof,  and  that,  in  the 
absence  of  any  allegation  to  the  contrary,  it  would  be  presumed  that 
the  assignment  to  the  plaintiff  was  bona  Jlcle,  and  for  a  valuable 
consideration. 

Affirmed. 

Ragan,  C,  not  sitting. 


Ex  parte  MANCHESTER  BANK.     In  re  MELLOR. 

12  Ch.  Div.  917.     187!). 

J.  II.  Mellob  and  his  son,  J.  W.  Mellor,  were  in  partnership  under 
articles  which  provided  that  the  machinery  and  stock-in-trade  should 
belong  to  the  father,  and  not  form  part  of  the  capital  of  the  firm. 
The  father  died,  having  by  will  empowered,  but  not  directed,  his  exe- 
cutors to  continue  his  business.  Two  of  the  executors,  the  son  and 
widow,  continued  the  business,  the  third  executor  being  cognizant,  but 
not  acting.  At  the  testator's  death  the  old  firm  were  indebted  to  a 
bank,  who  in  their  books  wrote  off  the  old  debt  and  debited  the  new 


264  THE    NATUEE    OF   A   PAKTNERSHIP.  [CHAP.  IIL 

firm  with  the  amount.  The  new  firm  went  into  liquidation.  At 
this  date  there  were  assets  in  possession  of  the  new  firm  in  specie, 
such  as  machinery,  which  had  been  employed  in  the  old  firm.  The 
bank  asked  to  have  these  assets  applied  to  its  claim  against  the  old 
firm,  while  the  creditors  of  the  new  firm  asked  to  have  all  the  assets 
distributed  as  the  property  of  the  new  firm.  An  issue  was  directed  in 
which  the  liquidation  trustee  should  be  plaintiff  and  the  bank  defend- 
ant, to  decide  whether  the  trustee  or  the  bank  was  entitled  to  the 
proceeds  of  such  old  firm  property.  The  trial  resulted  in  a  verdict  for 
the  plaintiff,  and  the  defendant  appealed. 

Merschell,  Q.  C,  and  Smyly,  for  the  appellant. 

Ambrose,  Q.  C,  and  Finlay  Knight,  for  the  trustee. 

Bacon,  C.  J.  The  question  is  purely  one  of  administration  in  bank- 
ruptcy. Mr.  Mellor  and  his  son  carried  on  business  together.  Mr. 
Mellor  being  the  capitalist,  and  the  owner,  if  not  of  all,  certainly  of 
the  larger  part  of  the  joint  property.  Mr.  Mellor  died.  What  was  the 
state  of  things  then  ?  Mr.  Mellor  could  not  by  his  will,  nor  by  any  act 
that  he  had  done  in  his  lifetime,  withdraw  from  the  partnership  any 
part  of  that  joint  estate  until  the  joint  debts  of  the  partnership  were 
paid.  The  right  of  a  partner  to  withdraw  from  the  partnership  is 
always  subject  to  the  equitable  right  which  the  co-partner  has  to  see 
that  all  the  debts  are  paid. 

In  administrations  in  bankruptcy  it  must  always  be  borne  in  mind 
what  are  the  equitable  rights  of  the  partners  inter  se,  because  the 
decision  of  that  question  governs  all  that  can  flow  from  the  transaction. 
.  .  .  The  question  before  me  is  simply  one  of  administration  in  bank- 
ruptcy, as  I  have  said.  At  the  date  of  Mr.  Mellor's  death  a  large 
amount  of  joint  debts  was  due,  and  the}7  are  all  paid,  it  seems,  but  one. 
Upon  Mr.  Mellor's  death,  there  being  a  certain  authority  contained  in 
his  will  to  his  executors  to  cam-  on  his  trade  with  a  partner  if  they 
thought  fit,  in  some  sort  of  helter-skelter  way,  without  articles  of 
partnership  and  without  any  agreement  from  which  I  can  draw  any 
just  conclusion,  the  widow  and  son  carried  on  the  business  and  have 
become  bankrupt.  It  is  said  that  the  partners  in  the  new  firm,  acting 
upon  some  authority  in  the  will,  made  out  a  balance-sheet.  If  so,  they 
made  it  out  for  their  own  purposes  only.  The}'  put  a  certain  assumed 
value  upon  the  joint  assets,  and  on  the  opposite  column  the}'  placed 
what  the}*  believed  to  be  the  joint  debts.  I  have  not  to  examine 
that  •  it  is  a  matter  of  no  kind  of  importance,  which  affects  nobody, 
and  certainly  does  not  affect  the  case.  They  carried  on  their  business 
in  this  way.  The  surviving  partner,  who  had  the  right  to  have  every 
shilling  of  the  joint  estate  applied  in  payment  of  the  joint  debts,  writes 
to  the  bank,  saying  :  "  We  have  begun  a  new  partnership  ;  my  mother 
and  I  are  carrying  on  the  business ;  you  will  accept  her  signature  to 
the  checks  she  draws  upon  you."  So  it  goes  on,  and  the  bank 
remains  a  joint  creditor  of  the  old  firm  down  to  the  present  time,  when 
the  new  firm  becomes  bankrupt ;   and  I  have  in  bankruptcy  to  admin- 


§  4.]  FIRM    TITLE   AFTER   THE   DEATH   OF   A   PARTNER.  265 

ister  the  assets  which  are  found  in  the  possession  of  that  new  firm. 
These  assets  are  joint  estate  remaining  in  specit  ;  it  is  not  a  question 
of  monej',  as  in  Ex  parte  Richardson,  Buck,  202,  and  the  other  cases 
in  which  sums  of  money  were  taken  from  the  testator's  estate.  Can 
there  be  any  doubt  that  the  persons  who  answer  the  description 
of  joint  creditors  are  the  persons  who  are  first  entitled  to  this 
estate?  .   .  . 

Ex  parte  Morley,  L.  R.  8  Ch.  1026,  was  referred  to.  In  that  case 
the  point  now  in  discussion  was  decided.  The  elder  Morley  died,  and 
the  joint  estate  became  vested  in  the  elder  Morley's  executors.  The 
son  carried  on  the  business,  no  matter  under  what  authority,  and 
became  bankrupt.  The  decision  of  the  court  in  Ex  parte  Morley  is, 
that  that  part  of  the  assets  belonging  to  the  joint  estate  in  the  lifetime 
of  the  father  was  distributable  among  the  joint  creditors  of  the  firm  in 
which  the  father  was  a  partner.  I  am  not  at  liberty*,  if  I  had  the 
inclination,  which  certainly  I  have  not,  to  go  against  a  plain  and  dis- 
tinct authority  and  recent  decision  of  the  Court  of  Appeal.  The  point 
was  very  fully  considered  in  the  judgment  of  Lord  Justice  James  and 
Lord  Justice  Mellish,  and  nothing  I  have  heard  tends  to  impeach 
that  opinion.  In  re  Simpson,  L.  R.  9  Ch.  572,  is  a  case  of  a  totally 
different  character.  There  it  was  provided  that,  if  a  partner  died,  all 
his  interest  in  the  partnership  was  to  vest  in  the  continuing  partners, 
and  that  that  which  was  his  and  their  joint  estate  should  thenceforth  be 
joint  estate  of  the  survivors.  That  is  authorized  by  other  cases  to 
which  I  will  not  trouble  to  refer. 

The  Court  of  Bankruptcy  is  a  court  of  equity,  and  it  has  always 
been  so  from  the  earliest  bankruptcy  statute  that  was  passed  down  to 
the  latest.  The  administration  of  the  court  has  alwa}-s  been  equitable. 
The  execution  of  the  act  was  intrusted  to  and  remained  for  a  great 
many  years  in  the  hands  of  the  head  of  the  Court  of  Chancery,  and  all  the 
decisions  which  can  be  referred  to  proceeded  upon  equitable  principles, 
except  those  few  cases  which  are  to  be  found  at  common  law,  where 
common-law  authorities  alone  prevailed.  "Wherever  any  question  of 
the  equities  between  partners  arises,  the  court  refers  to  the  principles 
which  govern  the  administration  of  property  in  the  Court  of  Chancery, 
ami  they  only  are  applicable  to  the  administration  of  bankruptcy.  In 
this  case  it  is  not  a  matter  of  dispute  that  all  the  joint  debts  existing 
at  the  date  of  the  death  of  the  elder  Mellor  are  paid,  except  that  of  the 
bankers,  and  it  is  also  admitted  that  there  are  certain  specific  assets 
which  were  the  property  of  the  joint  estate  at  the  date  of  the  elder 
Mellor's  death.  Supposing  the  assets  are  distributable  among  the 
joint  creditors,  if  there  were  more  than  one,  there  being  but  one,  they 
are  payable  to  the  bankers,  who  are  the  only  remaining  joint  creditors 
of  the  old  firm  of  Mellor  &  Son. 

The  appeal  must  be  allowed,  tcith  costs. 


266  THE    NATURE    OF   A   PARTNERSHIP.  [CHAP.  III. 


RAND   v.    WRIGHT  et  al. 

141  Iud.  226  :  39  N.  E.  447.     1895. 

Howard,  J.  This  action  was  brought  by  the  appellant,  as  receiver 
of  the  Indiana  Banking  Company,  to  recover  $214,200,  with  interest 
from  February  28,  1878,  out  of  which  sum,  it  is  alleged,  the  said 
banking  company  was  on  said  date  defrauded  by  appellees  in  the  sale 
by  them  to  said  company  of  certain  stock  of  the  First  National  Bank 
of  Indianapolis,  No.  55.  The  error  assigned  on  this  appeal  is  the 
sustaining  of  a  demurrer  to  the  complaint.  The  complaint  is  of 
great  length,  covering  about  one  hundred  closely  written  pages.  No 
question  seems  to  be  raised  as  to  the  merits  of  the  action  itself,  the 
only  matter  discussed  by  counsel  being  whether  the  suit  could  be 
brought  in  the  name  of  the  receiver.  We  shall  therefore  set  out  only 
such  of  the  facts  alleged  as  seem  necessary  to  consider  in  order  to 
decide  the  question  before  us. 

From  the  year  1865  there  had  existed  in  the  city  of  Indianapolis  a 
co-partnership  engaged  in  the  banking  business  under  the  firm  name 
and  style  of  the  Indiana  Banking  Company.  On  the  1st  day  of 
March,  1875,  the  meinbers  of  this  firm,  to  wit,  Frederick  A.  W. 
Davis,  William  H.  Morrison,  John  L.  Ketcham,  Jane  M.  Ketcham, 
William  Needham,  Peter  J.  Banta,  Peter  Ditmars,  and  Samuel  Miller, 
entered  into  a  written  agreement  of  co-partnership  under  said  name 
and  style  of  the  Indiana  Banking  Company,  with  a  paid-up  capital 
of  $300,000.  This  partnership  was  to  continue  until  the  1st  day  of 
March,  1880,  with  a  proviso  in  the  agreement  that  the  same  might 
be  extended  after  said  date,  "  as  may  be  deemed  best  for  the  interest 
of  the  then  owners  of  said  banking  company."  The  following  pro- 
visions were  also  made:  "  No  partner  shall  sell  his  shares  or  interest 
in  this  bank  to  any  person  whatever  without  first  offering  said  interest 
to  the  other  partners.  And  in  the  case  of  the  death  of  any  one  of 
the  partners,  his  or  her  heirs  or  legal  representatives  shall  occupy  the 
same  place  in  the  co-partnership  as  was  occupied  by  the  partner;  and 
it  shall  not  be  competent  for  such  heirs  or  legal  representatives  to 
withdraw  such  capital  until  the  expiration  of  the  term  of  partner- 
ship. The  president,  cashier,  and  assistant  cashier  are  the  only  per- 
sons authorized  to  bind  the  partners  in  this  banking  company;  and 
their  official  signatures  are  hereby  declared  legitimate  and  binding 
upon  all." 

It  was  during  the  term  of  the  partnership  so  formed  that  the  alleged 
fraud  was  practised  upon  said  banking  company  by  the  appellees, 
New  and  Wright,  then  president  and  vice-president  of  said  First 
National  Bank  of  Indianapolis,  No.  55;  the  details  of  which  alleged 
fraud  are  set  out  very  fully  in  the  complaint. 

It  is  further  alleged  that  at  the  close  of  said  partnership  period  of 
five  years  "  the   said  partners,  in  accordance  with  said  partnership 


£  •!.]  FIRM   TITLE    AFTER    THE    DEATH   OF   A   PARTNER.  267 

articles,  upon  consultation,  agreed  to  and  did  extend   and   continue 
said   partnership   for  the   further   period   of   two   years,   with  all    its 
rights,  credits,  and  assets  of  every  description,  including  said  stuck 
and  all  choses  in  action,  and  without  any  dissolution  or  withdrawal 
of  capital  or  assets  of  any  kind  or  description."     The  parties  who 
entered  into  the  agreement  for  extending?  the  term  for  two  years  from 
March  1,  1880,  to  March  1,  1882,  were  the  same  persons  who  entered 
into  the  original  articles  of  co-partnership.     The  articles  of  agree- 
ment for  the  extension  did  not  themselves  differ  essentially  from  the 
original  articles,   or,  at  least,   so  far  as  any  question  before  us   is 
concerned.      During  the  period  of  extension,  on  March  is,  L881,  one 
of  the   partners,   William  H.  Morrison,  died  intestate.     Thereupon 
his  widow,  Mary  Morrison,  qualified  as  administratrix  of  his  estate, 
and,  in  accordance  with  the  agreements  of  co-partnership,  took  his 
place   in  said   firm.     Thereafter  Mary  Morrison   and   the  surviving 
partners  continued  the  business  of  the  firm  unchanged,  until  a  short 
time  before  the  expiration  of   the  period  of  extension,  when,   it  is 
alleged,  that,  "  for  the  purpose  of  continuing  said  business  with  all 
its  rights,  credits,  assets,  choses  in  action,  duties,  and  obligations  of 
every  nature  and  description,  and  to  avoid  a  dissolution  and  winding 
up  of  the  affairs  of  the  said  company,  and  to  the  end  that  said  Samuel 
Miller  might  be  permitted  to  retire  from  said  business  and  the  said 
Mary  Morrison  become  individually  interested  therein,  without  any 
interruption  or  break   in   said   partnership  business,    and    that   the 
partnership  assets  of  every  kind  and  description  should  remain  and 
continue   in  the   business  under  the  same  name  and   style,"  a  new 
agreement  of  co-partnership,  and  also  one  of  sale  and  transfer  of  the 
interest  of  Samuel  Miller,  were  executed. 

By  these  last  agreements  the  name  of  the  partnership  continued  as 
before,  the  Indiana  Banking  Company.     The  capital  stock  remained 
the  same,  8300,000;  the  Miller  stock  being  purchased  in  proportional 
parts  by  the  other  members.     Mary  Morrison  continued  to  represent 
her  husband's  estate  as  administratrix  and  widow,  and  also  became  a 
stockholder  in  her  own  right  in  the  redistribution  of  the  whole  stock. 
The   board  of  control  was  continued   as   before.     The  term   of   the 
partnership  was  made  to  continue  three  years  from  March  1,  1882, 
with  provision  for  extending  the  term  as  before.     Provision  was  also 
made,  as  before,  for  purchasing  by  remaining  members  the  stock  of 
any  member  who  should  wish  to  retire,  as  was  also  the  provision  in 
relation   to  the  death  of  a   member.      In  all  other  respects  the  pro- 
visions of  these  articles  were  such  as  to  continue,  as  near  as  might 
be,  the  original  company  according  to  the  terms  of  the  first  articles 
of  agreement;  the  sole  substantial  change  being  that  Samuel  Miller's 
interest   passed    to   the    remaining    partners,    while    Mary    Morrison 
took  her  husband's  place.     The  sum  total  interests  of  the  company 
remained    identical.      In    the   agreement   of    purchase    of    the    Miller 
interest  the  remaining  partners  assumed  "all  debts  and  liabilities  of 


268  THE    NATURE   OF   A   PARTNERSHIP.  [CHAP.  III. 

the  former  firm,"  it  being  "  declared  to  be  the  true  intent  and  mean- 
ing "  of  the  agreement  that  the  remaining  partners  "will  pay  and  save 
said  Miller  harmless  from  all  debts  and  liabilities  for  which  he  is 
legally  liable  as  partner."  In  his  agreement  of  sale  to  his  partners 
Miller  stated  that  the  conveyance  was  of  "  all  my  right,  title,  claim, 
and  interest  in  and  to  all  the  estate,  property,  assets,  and  business 
of  the  firm  and  partnership  known  as  the  Indiana  Banking  Company, 
.  .  .  this  transfer  covering  all  real  estate  owned  by  [said  company], 
or  by  any  person  or  persons  in  trust  for  [it],  and  also  all  judgments, 
notes,  accounts,  bills,  credits,  choses  in  action,  and  property  of  any 
and  all  kinds  and  description  "  owned  by  said  firm,  or  in  which  it  has 
any  interest.  The  transfer  of  interest  and  title  from  the  old  com- 
pany to  the  new  could  hardly  be  more  complete.  No  element  of 
value  whatever  was  left  out.  The  property  rights  and  interests  of 
the  Indiana  Banking  Company  were  identical  in  the  old  and  the  new 
compan}'. 

It  is  further  alleged:  "  That  thenceforth  said  last-named  partners 
continued  to  carry  on  said  banking  business  without  interruption, 
under  the  same  firm  name,  and  without  other  change,  and  with  the 
same  assets,  rights,  and  credits,  and  choses  in  action,  until  the  9th 
day  of  August,  1883,  when,  by  reason  of  the  depletion  of  its  assets, 
and  the  impairment  of  its  credit,  resulting  from  and  occasioned  by 
the  wrongful  and  deceitful  practice  and  false  and  fraudulent  state- 
ments of  the  defendants,  New  and  Wright,  in  connection  with  the 
purchase  by  said  bank  of  said  defendants,  as  hereinbefore  set  forth, 
of  the  stock  of  said  First  National  Bank,  No.  55,  it  was  compelled 
to  and  did  close  its  doors  and  suspended  said  business ;  and  there- 
after, on  the  15th  day  of  August,  1883,"  in  an  action  in  the  Superior 
Court  of  Marion  County,  brought  by  the  partners  by  way  of  settle- 
ment of  their  affairs,  "  said  court  then  and  there  having  full  and  com- 
plete jurisdiction  of  the  subject  matter  of  said  action  and  the  parties 
thereto,  one  John  Landers  was  duly  appointed  receiver  of  all  and 
singular  the  assets  of  said  Indiana  Banking  Company,  including  all 
its  rights,  credits,  and  choses  in  action,  and  the  said  Landers  quali- 
fied and  entered  upon  the  discharge  of  his  duties  as  such  receiver; 
and  thereafter,  to  wit,  on  the  8th  day  of  October,  1883,  said  John 
Landers  was  by  said  Superior  Court  removed  from  his  said  position 
as  such  receiver,  and  John  C.  S.  Harrison  was  duly  appointed  receiver 
in  his  place  and  stead,  and  duly  qualified  and  entered  upon  the  dis- 
charge of  his  duties.  And  afterwards,  to  wit,  on  the  23d  day  of 
February,  1884,  said  Harrison,  as  such  receiver,  was  by  said  Superior 
Court,  in  said  cause,  .  .  .  ordered  and  directed  to  institute,  in  his 
own  name  as  such  receiver,  for  the  use  and  benefit  of  the  creditors  of 
said  Indiana  Banking  Company,  a  suit  against  the  said  defendants, 
New  and  Wright,  on  account  of  the  frauds  practised  in  the  sale  of 
said  stock,  and,  in  accordance  with  said  order  said  Harrison,  as  such 
receiver,  did,  on  the  23d  day  of  February,  1884,  institute  the  action 


$4]  FIRM   TITLE   AFTER   THE    DEATH   OF   A    PARTNER  269 

herein."  The  resignation  of  Harrison  as  receiver,  and  the  appoint- 
ment of  the  appellant  in  his  stead,  and  the  substitution  of  appellant 
as  plaintiff  in  this  suit,  are  finally  alleged. 

The  contention  of  appellees  is:  That  there  are  in  this  case  at  least 
three  co-partnerships,  each  known  by  the  name  of  the  Indiana  Bank- 
ing Company,  —  the  first  organized  for  five  years,  under  the  articles 
of  1875;  the  second  organized  for  two  years,  under  the  articles  of 
1880;  and  the  third  organized  for  three  years,  under  the  articles  of 
1--:';  that  the  right  of  action  against  appellees,  if  any,  originated 
in  February,  1878,  during  the  existence  of  and  in  favor  of  the  first 
co-partnership.  That  no  assignment  of  said  right  of  action  from  the 
first  banking  company  to  the  third  is  shown,  nor  are  any  facts  alleged 
from  which  such  assignment,  may  be  inferred.  That  it  is  not,  there- 
fore, shown  that  such  right  of  action  ever  passed  to  the  last  banking 
company,  of  which  appellant  is  receiver,  and,  therefore,  that  he  can- 
not be  the  proper  party  to  bring  this  suit. 

We  think  it  very  clear  from  the  facts  set  out  in  the  complaint  that 
there  were  at  most  but  two  companies  known  as  the  Indiana  Banking 
Company.  The  first  articles  provided  for  a  term  of  five  years,  with 
the  right  of  continuance  for  two  years  longer,  if  the  partners,  at  the 
end  of  the  five  years,  so  elected.  These  partners,  being  the  same 
identical  partners  who  entered  into  the  original  agreement,  did  elect 
to  continue  the  partnership,  and  they  did  actually  so  continue  the 
partnership.  The  partners  were  the  same,  the  capital  stock  the  same, 
the  government  by  a  board  of  control  the  same.  We  think  it  too 
plain  from  a  reading  of  the  complaint  that  the  right  of  action  which 
accrued  to  the  company  in  1878  passed  along  with  the  renewal  of  the 
company  quite  as  much  as  the  money  in  the  vaults,  or  any  other 
property  or  right  of  the  original  co-partnership.  To  the  assertion 
that  such  right  of  action  did  not  pass  with  the  other  property,  it 
might  well  be  asked:  AVhom  did  it  go  to?  What  became  of  it?  It 
was  not  a  right  of  person,  but  a  right  of  property,  and  could  not 
fail,  even  if  all  the  partners  had  died;  but,  on  the  contrary,  all  the 
original  partners  were  living,  and  still  present  in  the  continued  com- 
pany, with  their  combined  property  and  property  rights  and  interests 
unchanged  and  unimpaired. 

By  the  death  of  William  H.  Morrison  in  March,  1881,  however, 
there  can  be  little  doubt,  as  we  think,  that  the  law  would  have  worked 
a  dissolution  of  the  partnership,  were  it  not  for  the  provision  to  the 
contrary  in  the  articles  of  agreement.  Schmidts.  Archer,  113  Ind. 
36.},  and  authorities  cited.  By  that  provision  Mary  Morrison,  widow 
and  administratrix  of  William  II.  Morrison,  took  his  place  in  the 
company,  and  the  partnership  was  continued  under  the  board  of  con- 
trol until  March  1,  1882. 

Only  the  capital  stock  and  partnership  property  of  William  II. 
Morrison,  already  in  the  company  at  his  death,  however,  were  con- 
trolled   by  this  provision,  and  not  the  remainder  of  his  estate.     Tho 


270  THE    NATURE    OF   A   PARTNERSHIP.  [CHAP.  IIL 

authorities  cited  by  appellees  make  this  sufficiently  apparent;  Story, 
Partn.  §  201;  Burwell  v.  Mancleville's  Ex'rs,  2  How.  560;  Stewart  v. 
Robinson,  115  N.  Y.  328.  See  also  Vincent  v.  Martin,  79  Ala.  540; 
Stanwood  v.  Owen,  14  Gray,  195. 

On  the  formation  of  the  last  partnership,  in  February,  1882,  by  the 
terms  of  the  agreement,  as  set  out  in  the  complaint,  we  think  it  very 
clear  that,  while  a  new  partnership  was  entered  into,  which  continued 
from  March  1,  1882,  until  the  insolvency  and  appointment  of  the 
receiver,  in  August,  1883,  yet  all  the  capital  stock,  property,  and 
assets  of  every  description  belonging  to  the  first  partnership,  includ- 
ing the  right  of  action  in  this  case,  were  transferred,  unchanged  and 
unimpaired,  to  the  new  company,  in  the  same  fulness  of  title  as  they 
were  held  by  the  old  company.  One  of  the  partners  having  died, 
and  another  having  retired  after  disposing  of  all  his  interest  to  the 
remaining  partners,  these  surviving  partners  succeeded  to  the  full 
right  of  disposing  of  the  partnership  property  and  closing  up  its 
business.  Willson  v.  Nicholson,  61  Ind.  241;  Anderson?'.  Ackerman, 
88  Ind.  481;  Valentine  v.  Wysor,  123  Ind.  47;  Strange  v.  Graham, 
56  Ala.  614;  Stillwell  v.  Gray,  17  Ark.  473;  Ober  v.  Railway  Co., 
13  Mo.  App.  81;  Kinsler  v.  McCants,  4  Rich.  Law,  46;  T.  Pars. 
Partn.  440;  Lindl.  Partn.  341;  Bates,  Partn.  §718,  and  other  sec- 
tions and  notes.  The  surviving  partners  in  this  case  deemed  it  best 
to  join  with  the  representative  of  the  deceased  partner  in  continuing 
the  company,  and  to  that  end,  with  her,  entered  into  new  articles 
of  agreement.  All  the  old  interests  were  retained  in  the  new  firm. 
They  could  go  nowhere  else,  for  there  was  no  owner  of  any  intei'est 
in  the  old  firm  who  was  not  a  member  of  the  new  firm,  retaining  his 
proportionate  share  in  the  new  firm  as  he  did  in  the  old. 

Only  creditors,  or  some  of  the  partners  themselves,  to  protect 
endangered  interests,  could  disturb  the  new  firm  in  the  full  and  free 
exercise  of  every  right  enjoyed  by  the  old  firm.  This  the  partners 
did  do,  as  they  had  a  right  to  do  in  the  action  brought  by  them,  in 
which  the  receiver  was  appointed.  Even  the  partners,  however,  could 
not  complain  of  this  action,  and  of  the  appointment  of  the  receiver, 
which  was  the  result  of  their  own  deliberate  act.  Neither  could  the 
creditors  complain  of  it,  for  its  sole  object  was,  by  the  appointment 
of  a  receiver,  to  collect  and  dispose  of  the  assets  of  the  firm,  and  so 
secure  the  rights  of  the  creditors  themselves.  As  a  matter  of  fact, 
there  is  no  one  who  could  rightfully  complain,  either  of  the  forma- 
tion of  the  new  company,  and  the  transfer  to  it  of  all  property  and 
property  rights  of  the  old  company,  or  of  the  appointment  of  a 
receiver  to  take  possession  of  all  property,  and  collect  whatever  was 
due  the  company.  And  as  a  matter  of  fact,  also,  there  is  no  one 
attempting  to  complain  of  any  of  these  things,  except  the  appellees, 
against  whom  the  company  and  the  receiver  claim  the  damages  involved 
in  this  action. 

It  is   idle  to  say,  in  this  condition  of  affairs,  that  the  rigbt  of 


§  5.]  LIABILITY    OF   SURVIVING    PARTNERS.  271 

action  in  question  which  had  accrued  to  the  old  firm  did  not  pass 
fully  and  unimpaired  to  the  new  firm,  and  from  the  firm  itself  to  its 
receiver,  when  appointed.  There  was  no  place  else  where  it  could 
rest.  The  partners  in  the  new  company  had  assumed  the  liabilities 
of  those  in  the  old,  even  as  a  consolidated  railroad  company  does 
those  of  the  component  companies;  and  they  were,  in  like  manner, 
also  entitled  to  enjoy  all  the  properties,  rights,  and  interests  of  the 
old  partners.  Railway  Co.  v.  Bouey,  117  Ind.  501;  Railway  Co.  v. 
Piewitt,  134  Ind.  557.  But  when  the  receiver  was  appointed  for  the 
new  (inn,  on  petition  of  one  or  more  of  the  partners,  all  the  rights  of 
the  firm  at  once  passed  to  him,  in  trust  for  them  and  their  creditors, 
including-,  of  course,  authority  to  bring  this  suit. 

The  judgment  is  reversed,  with  instructions  to  the  court  in  General 
Term  to  direct  the  court  in  Special  Term  to  overrule  the  demurrer  to 
the  complaint,  and  for  further  proceedings  not  inconsistent  with  this 
opinion. 


§  5.     Liability  of  Surviving  Partners. 

KENNEY  et  al.  v.  HOWARD  et  al. 

68  Vt.  172:  31  At.  700.     1890. 

Ross,  C.  J.  Chester  Downer  and  defendant  Howard  were  partners 
in  a  lumbering  business.  February  14,  1890,  Chester  Downer  de- 
ceased. The  partnership  then  owned  a  large  amount  of  personal 
property  and  real  estate,  and  was  also  indebted  to  a  large  amount. 
The  defendant  Howard,  the  surviving  partner,  being  unable  to  sell 
the  partnership  property  so  as  to  meet  the  debts  of  the  firm,  raised 
money  on  his  own  notes  to  pay  a  portion  of  such  indebtedness.  He 
had  sold  some  of  such  property,  for  which  he  had  not  been  paid. 
The  remaining  partnership  personal  property  had  been  appraised  as 
a  part  of  the  estate  of  Downer.  In  this  state  of  the  affairs  of  the 
partnership,  the  surviving  partner,  Howard,  purchased  the  interest 
of  the  estate  in  the  partnership  personal  property  appraised,  and 
entered  into  an  agreement  with  the  plaintiffs  by  which  he  bound  him- 
self "to  apply  the  money  received  for  said  lumber  so  sold  and  not 
included  in  said  appraisal,  to  reduce  said  indebtedness  of  the  said 
Downer  and  Howard;  and  he  further  agrees,  secondly,  to  apply  the 
purchase  price  of  said  lumber,  to  wit.  the  sum  of  $7,510,  also,  on  said 
indebtedness  of  said  firm,  until  such  indebtedness  is  fully  extin- 
guished; thirdly,  to  apply  tin:  remainder  of  said  purchase  m< y,  if 

any,  to  settle  and  adjust  any  unsettled  deal  or  balance  that  the  said 
Howard  may  be  owing  said  Downer  estate;  and,  fourthly,  if  there  is 
any  left  of  said  purchase  money,  to  apply  the  same  on  the  notes  which 
the  said  Howard  is  owing  the  said  Downer  estate." 


272  THE    NATURE    OP   A    PARTNERSHIP.  [CHAP.  IIL 

The  defendant  Howard  gave  the  bond  in  suit  to  secure  the  fulfil- 
ment of  his  portion  of  the  agreement  above  quoted.  The  only  claimed 
breach  of  the  bond  is  that  he  used  some  of  the  purchase  price  of  the 
lumber,  or  of  the  $7,510,  to  pay  the  notes  which  he  had  given  to  raise 
money  to  pay  partnership  indebtedness,  while  managing  the  business 
as  surviving  partner.  The  contention  is,  was  this  an  application  of 
the  purchase  price  of  the  lumber  "on  said  indebtedness  of  said  firm 
until  such  indebtedness  is  fully  extinguished"?  If  not,  there  was  a 
breach  of  the  bond  in  suit,  although  he  subsequently  paid  all  the 
partnership  debts,  so  that  none  were  returned  allowed  against  the 
estate.  If  so,  then  there  has  been  no  breach  of  his  bond  by  defendant 
Howard. 

In  determining  this  contention,  it  is  to  be  borne  in  mind  that  the 
agreement  is  between  the  estate  of  Downer,  the  deceased  partner,  and 
Howard,  the  surviving  partner.  The  death  of  Downer  dissolved  the 
partnership.  Yet  having  borrowed  the  money,  and  used  it  for  pay- 
ing partnership  debts,  Howard  would  be  entitled  to  pay  the  notes  out 
of  partnership  funds.  The  notes,  in  form,  were  his  personal  debts. 
The  holder  of  the  notes,  at  law,  would  be  obliged  to  sue  him  alone. 
But  the  money  derived  therefrom  having  been  used  in  the  partner- 
ship business,  the  notes,  if  paid  by  the  estate  of  Downer,  would  have 
been  extinguished,  and  it  could  have  collected  only  one-half  of  the 
sum  paid  from  Howard.     Sprague  v.  Ainsworth,  40  Vt.  47. 

In  that  case  the  plaintiff  sought  to  recover  on  a  promissory  note 
signed  by  the  defendant,  which  he  purchased  of  Ziba  Sprague. 
Under  the  charge  of  the  court,  the  jury  found  that  Ziba  Sprague 
and  defendant,  at  the  time  the  note  was  given,  were  partners,  and 
that  the  defendant,  with  the  knowledge  and  assent  of  Ziba  Sprague, 
gave  the  note  to  the  Bank  of  Royalton  to  raise  money  to  use  in  the 
partnership  business;  that  Ziba  Sprague  took  up  the  note  when  it 
was  due,  and  afterwards  sold  it  to  the  plaintiff.  It  was  held  that  the 
payment  of  the  note  by  Ziba  Sprague  was  an  extinguishment  of  the 
note,  and  that  the  plaintiff  could  not  recover  upon  it.  This  holding 
is  placed  on  the  ground  that  although,  as  between  the  bank  and 
defendant,  the  note  was  the  individual  note  of  the  defendant,  yet 
having  been  made  for,  and  the  money  received  used  in,  the  partner- 
ship business,  with  the  assent  of  Ziba  Sprague,  as  between  Ziba 
Sprague  and  the  defendant  it  was  a  partnership  debt,  and  that  its 
payment  by  the  other  partner  was,  in  law,  its  extinguishment. 

We  think,  in  principle,  the  notes  of  the  defendant,  which  he  gave 
in  his  own  name,  while  acting  as  surviving  partner,  to  raise  money 
which  he  used  in  paying  partnership  debts,  was  an  obligation  which, 
as  between  him  and  the  estate  of  the  deceased  partner,  was  to  be  paid 
out  of  the  partnership  assets.  These  notes  were  not,  and  could  not 
be,  given  with  the  assent  of  Downer.  His  power  to  assent  being 
taken  away  by  death,  the  law  cast  upon  the  surviving  partner  the 
duty  of  judiciously  managing  the  partnership  property,  and  of  pay- 


§5.] 


LIABILITY    OF   SURVIVING   PARTNERS.  2,3 


in<*  the  partnership  debts,  even  to  borrowing  money,  if  necessary, 
fco  pay  pressing  partnership  debts,  without  such  assent.  "While  the 
payee  of  the  notes  could  only  sue  the  defendant  thereon,  yet  if  the 
plaintiffs,  as  executors  of  the  will  of  the  deceased  partner,  had  paid 
the  same,  they  would  have  paid  a  partnership  indebtedness,  and  could 
have  charged  only  one-half  of  the  sum  paid  to  the  defendant.  Hence 
while,  between  the  defendant  and  the  payee  of  the  notes,  they  were 
the  individual  notes  of  the  defendant,  between  the  estate,  represented 
by  the  plaintiffs,  and  defendant  Howard,  they  represented  a  partner- 
ship indebtedness.  The  agreement  secured  by  the  bond  in  suit  was 
between  the  plaintiffs,  as  the  representatives  of  the  estate  of  the 
deceased  partner,  and  Howard,  the  surviving  partner,  and  bound 
Howard,  first,  to  apply  the  purchase  money  of  the  partnership  prop- 
ertv  bought  by  him  on  the  indebtedness  of  the  firm,  until  such 
indebtedness  is  fully  extinguished.  The  notes  paid,  between  the 
parties  to  this  agreement,  secured  by  the  bond  in  suit,  represented 
a  partnership  indebtedness.  Hence  their  payment  by  Howard  out 
of  the  purchase  price  of  the  partnership  property  bought  by  him 
was  a  fulfilment,  and  not  a  breach,  of  the  condition  of  the  bond  in 
suit. 
The  judgment  of  the  County  Court  is  affirmed. 


RUSLING   v.   BRODHEAD  et  al. 

35  At.  841 :  55  N.  J.  Eq.  — .     1896. 

Stevens,  V.  C.  It  appears  by  the  bill  that  in  June,  1894,  Calvin 
E.  Brodhead,  Robert  P.  Brodhead,  and  Daniel  C.  Hickey  were  co- 
partners in  business,  and  that  as  such  they  made  the  following  agree- 
ment with  complainant:  "For  and  in  consideration  of  the  sum  of  one 
(1)  dollar  in  hand  received,  the  receipt  of  which  is  hereby  acknowl- 
edged, we,  Brodhead  &  Hickey,  hereby  agree  to  and  do  hereby  sell 
and  assign  to  Geo.  M.  Rusling,  his  heirs  or  assigns,  a  one-fourth 
interest  in  any  and  all  of  the  net  profits  which  may  arise  from  the  doing 
of  the  work  under  any  contract  which  we  may  or  shall  obtain  and 
accept  from  the  Hudson  River  Railroad  &  Terminal  Company,  or 
their  successors  or  assigns,  for  the  building  of  a  tunnel  through 
Bergen  Hill,  near  Edgewater,  New  Jersey,  and  any  other  work  per- 
taining or  belonging  thereto.  And  the  said  Geo.  M.  Rusling  hereby 
agrees  to  furnish  his  proportion  of  the  capital  necessary  for  carrying 
on  the  said  work,  up  to  the  sum  of  four  thousand  dollars  (84,000) 
for  said  proportion,  pro  rata  with  Brodhead  &  Hickey,  as  may  be 
required.  Executed  this  23d  day  of  June,  1892,  in  duplicate. 
Brodhead  &  Hickey.  G.  M.  Rusling."  After  this  agreement  was 
made,  Brodhead  &  Hickey  obtained  the  contract  to  which  it  related, 

18 


274  THE    NATURE    OF   A   PARTNERSHIP.  [CHAP.  III. 

and  had  completely  performed  it  on  or  about  July  1,  1894.     On  July 
12,  1894,  Hickey,  one  of  the  partners,  died.     He  was,  at  the  time  of 
his  death,  a  citizen  of  and  resident  in  the  State  of  New  York.     The 
bill  alleges  that  no  personal  representative  of  his  estate  has  been 
appointed  "  within  the  jurisdiction   of  this  court."     It  also  alleges 
that  on  September  15,  1894,  "  Brodhead  and  Hickey,  as  co-partners, 
received  .   .   .   full  payment  for  all  work  done  under  the  contract." 
The  complainant  prays,   as   against  the   surviving    members   of   the 
firm,  an  account  of  profits,  and  a  decree  for  payment  to  him  of  one- 
fourth  part  of  them.     Both  of  the  surviving  partners  demur  on  the 
ground  that  the  personal  representative  of  Daniel  C.  Hickey  ought 
to   be  made   parties.     As  the  foreign    representatives   of   Hickey's 
estate  are  not  liable  to  be  sued  in  their  representative  capacity  in 
the  courts  of  this  State  (Durie  v.  Blauvelt,  49  N.  J.  Law,  114),  the 
complainant  has  not  called  upon  them  to  answer,  and  has  not  prayed 
process  against  them.     The  question   is  whether  they  are,   notwith- 
standing  the   complainant's  inability  to  bring  them   into  court,  so 
indispensably  necessary  to  the  prosecution  of  the  suit  that  no  decree 
can  be  made  against  the  surviving  partners  alone. 

The  agreement  of  June  23,  1892,  is  somewhat  peculiar.     It  does 
not  create  an  ordinary  partnership  between  the  parties,  although  it 
contains  some  of  the  elements  of  a  partnership.     It  is  not  an  agree- 
ment between  A.,  B.,  and  C.  to  share  profits  and  bear  losses,  but  an 
agreement  by  the  firm  of  A.  &  B.  on  the  one  hand  to  give  to  C.  on 
the  other,  for  a  certain  consideration,  one-fourth  of  the  profits  which 
that  firm  may  make  in  a  specified  venture.     It  does  not  provide  that 
C.  shall  become,  even  temporarily,  a  partner  of  this  firm,  or  of  any 
new  firm  to  be  created  pro  hac  vice.     Its  language  is,  in  substance, 
this:  We,  the  firm  of  Brodhead   &   Hickey,   do   sell   and   assign  to 
Geo.  M.  Rusling  a  fourth  interest  in  the  net  profits  which  may  arise 
from  the  doing  of  any  work  under  any  contract  which  we  (the  firm  of 
Brodhead  &  Hickey)  shall  obtain,  etc.     There  are  these  things  to  be 
noted  in  the  agreement.     It  was  intended  (1)  that  the  contract  which 
the  parties  hoped  to  secure  should  be  taken  by  the  firm  of  Brodhead 
&  Hickey  alone;   (2)  that  Rusling  should  not  have  any  right  of  con- 
trol over  or  management  of  the  firm's  affairs;  and  (3)  that  Rusling 
should  furnish  capital,  up  to  $4,000,  pro  rata,  not  with  the  individual 
members  of  the  firm,  but  with  the  firm  itself.     The  paper  is  signed 
only  in  the  firm  name.     The  agreement  is  not  unlike  that  which  was 
before  the  court  in  Hargrave  v.   Conroy,   19  N.   J.  Eq.  281,  and  in 
Walker  v.  Hirsch,  27  Ch.  Div.  460,  — cases  in  which  it  was  held  that 
no  true  partnership  existed  between  the  parties. 

Now,  if  the  complainant  was  not  a  member  of  the  firm  of  Brodhead 
&  Hickey,  but  one  merely  who,  by  reason  of  his  agreement,  had  some 
claim  upon  it,  even  though  that  claim  was  of  such  a  character  that  an 
account  was  necessary,  there  would  seem  to  be  no  substantial  objec- 
tion to  allowing  him  to  proceed  against  the  surviving  partners,  just 


g    5  ]  LIABILITY   OF   SURVIVING   PARTNERS.  275 

as  any  other  claimant  might  do.  According  to  a  perfectly  well- 
settled  rule,  on  the  death  of  a  partner,  the  surviving  members  are  the 
proper  persons  to  get  in  and  pay  its  debts.  2  Lindl.  Partu.  591. 
They  alone  sue  and  are  sued  in  a  court  of  law.  They  alone  represent 
the  partnership.  They  are,  presumably,  more  familiar  with  its  affairs 
than  any  one  else.  If  they  can  protect  the  interests  of  the  firm  in  a 
court  of  law,  why  can  they  not  in  a  court  of  equity?  It  is  no  doubt 
true  that  in  equity,  the  representatives  of  a  deceased  partner  are 
ordinarily  deemed  necessary  parties;  but  the  question  here  is  whether 
they  arc  in  cases  situated  as  this  is  situated,  so  indispensably  neces- 
sary that  the  case  must  fail  if  they  be  not  present.  I  do  not  think 
they  are.  It  is  well  settled  that  persons  out  of  the  jurisdiction  need 
not  b<'  made  parties,  unless  their  presence  is  indispensable  to  the 
ascertainment  of  the  merits  of  the  case,  or  unless  their  interests  will 
be  prejudiced  by  the  decree.  Story,  Eq.  PI.  §  81 ;  Daniell,  Ch.  Prac. 
(6th  ed.)  *150.  Judge  Story  thus  states  the  rule  in  regard  to  part- 
ners: "  If  one  of  the  partners  be  resideut  in  a  foreign  country,  so  that 
he  cannot  be  brought  before  the  court,  and  the  fact  is  so  charged  in 
the  bill,  the  court  will  ordinarily  proceed  to  make  a  decree  against 
the  partners  who  are  within  the  jurisdiction,  with  this  qualification, 
however:  that  it  can  be  done  without  manifest  injustice  to  the  absent 
partner."  Tested  by  this  rule,  the  personal  representatives  of  Hickey 
may  be  dispensed  with.  Their  presence  is  not  necessary  to  the 
ascertainment  of  the  merits  of  the  case.  Thev  had  nothing  to  do 
with  the  making  or  performance  of  the  contract,  and,  so  far  as 
appears,  they  were  entire  strangers  to  it.  The  surviving  partners 
are  fully  capable  of  protecting  the  firm  interests,  and  no  injustice 
will  be  done  to  the  estate  of  the  deceased  partner  because  on  a  settle- 
ment of  the  affairs  of  Brodhead  &  Mickey,  either  in  court  or  out  of 
it.  the  representatives  of  the  Hickey  estate  not  having  been  parties 
to  this  suit,  and  not  being  bound  by  the  decree,  will  be  at  liberty  to 
'Hiestion  any  account  the  surviving  partners  may  present  to  them, 
and  have  it  corrected  if  it  should  appear  to  be  erroneous,  just  as  they 
would  be  able  to  question  any  other  act  of  the  surviving  partners 
done  in  the  execution  of  their  trust. 

On  the  other  hand,  the  refusal  of  the  court  to  proceed  would  amount 
to  a  denial  of  justice.  The  complainant  and  one  of  the  defendants 
reside  here,  and  the  work  under  the  contract  was  performed  here. 
To  allow  the  demurrer  would  be  to  declare  that,  although  the  surviv- 
ing partners  have  in  hand  the  profits  of  the  contract,  and  are  Legally 
mntable  for  them  to  the  complainant,  yet  that,  because  certain 
Other  persons,  who  know  nothing  about  the  matter,  and  who  cannot 
!"•  brought  into  court,  arc  not  present,  the  complainant  is  remediless. 
None  of  the  cases  cited  by  complainant  go  to  this  length.  They 
are  cases  in  which  it  was  held  either  that  the  presence  of  those  inter- 
ested,  but  not  made  parties,  was  indispensably  necessary  to  the  ascer- 
tainment of  the  merits,  or  cases  —  notably  that  of  the  leading  casu 


276  THE    NATUEE   OF   A   PARTNERSHIP.  [CHAP.  III. 

of  Shields  v.  Barrow,  17  How.  130  —  in  which  manifest  injustice 
would  have  been  done  to  absent  parties  by  a  decree  directly  affecting 
their  rights. 

The  demurrer  should  be  overruled. 


§  6.     Firm  Debts  and  Partners'  Joint  Debts. 

In  re   VETTERLEIN   et  al.,  Bankrupts. 
5  Ben.  U.  S.  Dist.  Ct.  311.     1871. 

Prior  to  May,  1865,  the  firm  of  Vetterleiu  &  Co.,  in  Philadelphia, 
was  composed  of  Theodore  H.  Vetterlein  and  Charles  A.  Meurer. 
On  May  1,  1865,  Bernhard  T.  Vetterlein  and  Theodore  J.  Vetterlein 
were  taken  in  as  partners.  In  February,  1870,  Meurer  retired  from 
the  firm. 

Prior  to  May  1,  1865,  the  firm  of  Th.  H.  &  B.  Vetterlein  & 
Co.,  in  New  York,  had  been  composed  of  Theodore  H.  Vetterlein, 
Bernhard  Vetterlein,  and  Henry  Thiermann.  On  May  1,  1865, 
Bernhard  Vetterlein  and  Henry  Thiermann  retired,  and  Bernhard  T. 
Vetterlein  and  Theodore  J.  Vetterlein  were  taken  in,  and  the  busi- 
ness was  conducted  under  the  name  of  Th.  H.  Vetterlein  &  Sons,  its 
only  capital  being  the  interest  of  Theodore  H.  Vetterlein  in  the 
former  firm.     In  1867  Theodore  J.  Vetterlein  retired  from  both  firms. 

On  February  7,  1871,  Theodore  H.  Vetterlein  and  Bernhard  T. 
Vetterlein  were  adjudged  bankrupts.  The  assignee  in  bankruptcy 
realized  sums  from  the  separate  estate  of  Theodore  H.  Vetterlein, 
against  whom  no  individual  debts  were  proved.  He  also  realized 
something  from  the  assets  of  each  of  the  firms.  Th.  H.  Vetterlein  & 
Sons  were  proved  to  be  creditors  of  Vetterlein  &  Co.  to  the  amount 
of  $40,000.  Different  debts  were  proved  against  each  of  the  two 
firms. 

The  following  questions  were  raised  by  the  assignee  and  submitted 
to  the  court :  — 

1.  Shall  Th.  H.  Vetterlein  &  Sons  and  Vetterlein  &  Co.  be  treated 
as  separate  and  distinct  firms  in  the  distribution  of  the  assets? 

2.  What  disposition  shall  be  made  of  the  proceeds  of  the  estate 
of  Theodore  H.  Vetterlein  ? 

3.  How  shall  the  assignee  treat  the  indebtedness  of  Vetterlein  & 
Co.  to  Th.  H.  Vetterlein  &  Sons,  as  regards  the  distribution  of  the 
assets? 

Blatchford,  J.  1.  Th.  H.  Vetterlein  &  Sons  and  Vetterlein  &  Co. 
ought  not  to  be  treated  as  separate  and  distinct  firms  in  the  distribu- 
tion of  assets  belonging  to  Theodore  H.  Vetterlein  and  Bernhard  T. 
Vetterlein,  as  co-partners. 


§  6.]  FIRM    DEBTS   AND    PARTNERS'    JOINT   DEBTS.  277 

2.  If  there  are  no  debts  proved  against  Theodore  H.  Vetterlein 
individually,  the  proceeds  of  his  separate  estate  must,  under  section 
36,  be  added  to  the  joint  stock  and  property  of  the  co-partners,  for 
the  payment  of  their  joint  creditors. 

3.  The  assignee  ought  to  take  no  notice,  in  the  distribution  of  the 
assets,  of  the  indebtedness  of  Vetterlein  &  Co.  to  Th.  H.  Vetterlein 
&  Sous. 

In  the  foregoing  conclusions,  I  assume  that  no  other  person  is  liable 
jointly  with  Theodore  H.  Vetterlein  and  Bernhard  T.  Vetterlein  in 
the  debts  for  which  they  are  jointly  liable,  and  that  no  other  person 
is  joint  owner  with  them  of  the  assets  in  which  they  are  jointly 
interested. 


SAUNDERS   et  al.    v.  REILLY. 

105  N.  Y.  12.     1887. 

Ear£,  J.  This  action  was  brought  by  the  plaintiffs  against  the  de- 
fendant, late  sheriff  of  the  city  and  count}-  of  New  York,  to  recover 
damages  against  him  for  making  a  false  return  to  an  execution  issued 
upon  a  judgment  recovered  by  the  plaintiffs  against  William  T.  Tooker 
and  Thomas  J.  Irwin,  who  were  partners  under  the  firm  name  of  Tooker 
&  Irwin.  The  action  was  put  at  issue  by  the  answer  of  the  defendant, 
and  brought  to  trial  at  a  circuit  court,  and  the  trial  judge,  after  the 
close  of  the  evidence,  directed  a  judgment  for  the  plaintiffs.  The  de- 
fendant appealed  from  the  judgment  entered  upon  that  verdict  to  the 
General  Term,  and  from  affirmance  there  to  this  court. 

The  material  facts  are  as  follows  :  In  January  and  February,  1879, 
William  T.  Tooker  and  Thomas  J.  Irwin  were  partners  under  the  firm 
name  of  Tooker  &  Irwin,  carrying  on  business  in  the  city  of  New 
York.  At  the  same  time  Tooker  &  Irwin,  together  with  Julius  A. 
Candee  and  Daniel  Webster  Arnold,  were  partners  under  the  firm  name 
of  Tooker,  Arnold,  &  Co.,  also  carrying  on  business  in  the  city  of  New 
York.  In  the  latter  firm  Arnold's  share  was  three-twelfths,  Candee's 
share  four-twelfths,  and  Tooker  and  Irwin's  share,  jointly,  five-twelfths. 
On  the  ICth  day  of  January,  1879,  these  plaintiffs  recovered  a  judg- 
ment against  Tooker  &  Irwin  for  upwards  of  S800,  and  early  on  the 
next  day  they  issued  and  placed  in  the  hands  of  the  sheriff  an  execution 
on  that  judgment.  Later  on  the  same  day,  Jane  Irwin  issued  an  execu- 
tion to  the  sheriff  on  a  judgment  recovered  by  her  for  upwards  of  $7,000 
against  the  firm  of  Tooker,  Arnold,  &  Co.  The  sheriff,  under  these 
executions,  levied  on  the  personal  property  of  Tooker  &  Irwin,  and 
advertised  the  same  for  sale.  These  plaintiffs,  then  having  a  further 
claim  for  goods  sold  to  the  firm  of  Tooker  &  Irwin,  which  was  not  then 
in  judgment,  gave  notice  to  the  sheriff,  on  January  23d,  that,  as 
creditors  of  the  firm  of  Tooker  &  Irwin,  they  claimed  the  application  of 


278  THE    MATURE    OF   A    PARTNERSHIP.  [CHAP.  IIL 

the  firm  property  to  the  payment  of  the  firm  debts,  and  they  forbade 
any  sale  of  the  assets  of  the  firm  under  the  execution  issued  by  Jane 
Irwin  on  her  judgment  against  Tooker,  Arnold,  &  Co.  On  February 
7th  the  sheriff,  after  selling  enough  of  the  firm  property  to  satisfy 
the  executions  then  in  his  hands  against  the  firm  of  Tooker  &  Irwin, 
proceeded  to  sell  the  balance  of  the  property  on  the  execution  in  his 
hands  in  favor  of  Jane  Irwin.  In  making  that  part  of  the  sale  he  an- 
nounced that  he  sold  the  right,  title,  and  interest  of  Tooker  &  Irwin,  or 
either  of  them,  in  the  property.  On  the  17th  day  of  February,  1879, 
the  plaintiff  recovered  judgment  against  the  firm  of  Tooker  &  Irwin  on 
their  second  claim  against  that  firm,  which  was  duly  docketed,  and  exe- 
cution thereon  issued  on  the  same  day  to  the  sheriff.  At  the  same  time 
their  attorney  wrote  to  the  sheriff  that  they  required  him,  under  that 
execution,  to  levy  on  any  of  the  assets  of  the  firm  of  Tooker  &  Irwin  of 
which  he  had  only  sold  the  interest  of  William  T.  Tooker,  individually, 
and  Thomas  J.  Irwin,  individually,  under  the  execution  issued  by 
Jane  Irwin,  and  that  if  he  had  sold  under  the  execution  issued  to  him 
by  Jane  Irwin  an}*  of  the  assets  of  the  firm,  notwithstanding  the  notice 
which  the  plaintiffs  had  given  him,  then  the}'  required  him  to  apply  the 
proceeds  of  such  sale  to  their  execution.  That  execution  he  returned 
unsatisfied ;  and  that  is  the  return  which  the  plaintiffs  complain  of  as 
false.  ' 

The  propert}*  sold  on  the  execution  issued  by  Jane  Irwin,  or  some  of 
it,  was  still  accessible  to  the  defendant,  and  ample  to  satisfy  the  plain- 
tiffs' last  execution,  if  the  defendant  had  the  right  and  was  bound  to 
seize  it  notwithstanding  the  prior  sale. 

The  claim  of  the  plaintiffs,  which  has  been  sustained  by  the  court 
below,  is  that  the  sale  upon  the  execution  issued  upon  the  judgment  of 
Jane  Irwin  simply  operated  as  a  sale  of  the  separate  interest  of  Tooker 
&  Irwin  in  the  firm  property,  and  not  as  a  sale  of  the  corpus  of  the  firm 
property ;  and  thus  no  greater  effect  was  given  to  the  sale  than  if  it 
had  been  made  by  virtue  of  two  executions  upon  judgments  separately 
recovered  against  Tooker  and  against  Irwin. 

The  decision  below  was  based  upon  the  authority  of  Menagh  v. 
Whitwell,  52  N.  Y.  146.  But  we  are  of  opinion  that  that  case  cannot 
properly  be  invoked  for  the  decision  made  below,  and  that  the  principle 
there  decided  was  misapplied  by  the  learned  court. 

A  mere  general  creditor  of  a  firm,  having  no  execution  or  attachment, 
has  no  lien  whatever  upon  the  personal  assets  of  the  firm.  But  when 
a  firm  becomes  insolvent,  and  thus  it  becomes  necessary  to  administer 
its  affairs  in  insolvency  or  in  a  court  of  equity,  then  the  rule  is  well 
settled  that  firm  property  must  be  devoted  to  firm  debts,  and  individual 
property  to  the  payment  of  the  individual  debts  of  the  members  of  the 
firm.  If  one  member  of  a  firm  conveys  to  a  person,  not  a  member  of 
the  firm,  all  his  interest  in  the  firm  property,  the  purchaser  takes  no 
part  of  the  corpus  of  the  firm  property,  but  only  such  interest  as  re- 
mains after  the  equities  between  the  partners  have  been  adjusted  and 


§   6.]  FIRM    DEBTS    AND    PARTNERS'    JOINT    DEBTS.  279 

the  firm  debts  have  been  paid  and  satisfied.  So,  too,  it  was  decided 
by  the  case  above  cited  that  if  all  the  members  of  a  firm  should  severally 
convey  to  different  persons  each  his  interest  in  the  linn  property,  the 
persons  so  purchasing  would  not  take  any  of  the  corpus  of  the  firm 
property,  but  only  the  interest  of  each  partner  after  the  firm  debts 
were  paid,  and  the  equities  between  the  partners  adjusted.  It  is  also 
settled  that  it  would  be  a  fraud  upon  firm  creditors  for  a  member  of  a 
firm  to  take  firm  property  and  apply  it  upon  his  individual  debts,  or  for 
the  firm  to  take  firm  property  and  apply  it  upon  the  individual  debts 
of  any  member  of  the  firm.  Ranson  /•.  Van  Deventer,  41  Barb.  307; 
Wilson  y.  Robertson,  21  X.  Y.  587.  But  one  of  two  partners  may 
transfer  all  of  his  interest  in  the  partnership  propert}-  to  his  co-partner, 
and  the  purchasing  partner  will  be  vested  with  the  absolute  title  to  the 
corpus  of  all  the  partnership  property,  as  if  it  had  always  belonged  to 
him.  Stanton  v.  Westover,  101  X.  Y.  265.  And  all  the  members  of  a 
firm  may  sell  the  partnership  property,  even  if  wholly  insolvent,  to  a 
purchaser  in  good  faith,  and  thus  convey,  free  from  the  claim  of  firm 
creditors,  a  good  title  to  the  firm  property.  Instead  of  selling  for  cash 
they  may  transfer  firm  property  to  pay  a  firm  debt.  And  they  may 
transfer  firm  property  to  pay  a  joint  debt  for  which  they  are  jointly 
liable  outside  of  the  business  of  the  firm,  ami  the  joint  creditor 
will  obtain  a  good  title  to  the  firm  property.  Therefore,  while  firm 
property  will  not  pass  under  successive  sales  upon  executions  issued 
against  the  individual  partners,  we  can  see  no  reason  to  doubt  that  such 
property  will  pass  under  a  sale  upon  a  joint  execution  against  all  the 
partners,  issued  upon  a  judgment  recovered  for  any  joint  debt 
whatever. 

Upon  the  facts  of  this  case  it  is  entirely  clear  that  Tooker  &  Irwin 
could  have  taken  their  firm  property  and  applied  it  upon  this  joint  judg- 
ment against  them  ;  and,  inasmuch  as  they  had  the  power  and  right  to 
do  that,  they  could  have  turned  it  out  to  the  sheriff  when  he  came  with 
the  joint  execution  against  them  ;  and  as  they  could  have  turned  it  out 
upon  the  debt  before  judgment,  or  upon  the  execution  after  judgment, 
there  can  be  no  reason  to  doubt  that  the  sheriff  could  take  and  sell  it 
upon  the  execution,  free  from  the  claim  of  their  firm  creditors.  After 
this  sale  of  the  firm  property  upon  a  joint  judgment  against  both  members 
of  the  firm,  no  equity  was  left  in  either  member  of  the  firm  to  have  the 
property  thereafter  applied  in  discharge  of  the  firm  debts.  Having 
been  applied  in  discharge  of  the  joint  debt  against  both  members  of 
the  firm,  all  the  equities  of  both  members  in  the  property,  as  against. 
each  other,  were  wiped  out ;  and  it  is  only  through  the  equity  which 
one  member  of  a  firm  has  in  the  firm  property,  or  against  his  co-partners, 
that  firm  creditors,  on  the  principle  of  subrogation,  can  enforce  their 
claims  against  the  firm  property.  And  so,  in  effect,  it  was  held  in  the 
case  of  Menagh  u.  Whitwell,  and  Stanton  v.  Westover,  supra.  In 
■>  Kent's  Commentaries,  05,  it  is  said  that  "creditors  have  no  lien 
Dpon  the  partnership  effects  for  their  debts.     Their  equity  is  the  equity 


280  THE   NATURE    OF   A    PARTNERSHIP.  [CHAP.  III. 

of  the  partners  operating  to  the  payment  of  the  partnership  debts." 
In  Kirby  v.  Schoonmaker,  3  Barb.  Ch.  46,  it  was  said  by  the  chancellor: 
"  The  co-partners,  however,  have  certain  equitable  rights  between  them- 
selves, arising  out  of  the  co-partnership,  by  which  either  can  compel 
the  other  to  have  all  the  effects  of  the  firm  applied  in  the  first  place  to 
the  payment  of  the  debts  due  from  them  as  co-partners.  And  this,  as 
is  said  in  the  books,  gives  the  joint  creditors  a  quasi  equitable  lien  upon 
the  property  of  the  firm,  to  be  worked  out  through  the  medium  of  the 
equity  of  the  co-partners  as  between  themselves,  and  with  their  assent, 
or,  at  least,  with  the  assent  of  one  of  them."  .   .  . 

Therefore,  after  the  sale  of  the  joint  property  upon  a  joint  judgment, 
although  the  judgment  was  not  recovered  upon  a  debt  against  the 
separate  firm  of  Tooker  &  Irwin,  there  were  no  rights,  legal  or  equitable, 
left  to  either  member  of  the  firm,  in  the  property,  and  therefore  no 
equity  in  the  firm  property  to  be  worked  out  under  them  by  any  of  the 
firm  creditors. 

The  statute  (Code,  §  1369)  requires  the  sheriff  to  satisfy  an  execution 
against  property  "  out  of  the  personal  property  of  the  judgment  debtor," 
and  if  sufficient  personal  property  cannot  be  found,  then  out  of  the  real 
propert}'  belonging  to  him.  There  is  no  statute  or  rule  of  law  which 
requires  the  sheriff  to  satisfj-  a  joint  execution  out  of  the  joint  property 
of  the  execution  debtors,  or  out  of  the  separate  property  of  each  debtor. 
He  may  satisfy  such  an  execution  out  of  the  joint  propertj',  or  out  of 
the  separate  propert}'  of  any  one  or  more  of  the  debtors.  In  1  Lindley 
on  Partnership,  515,  it  is  said  that,  "  although  the  writ  of  execution  on 
a  joint  judgment  must  be  joint  in  form,  it  may  be  levied  upon  all,  or 
any  one  or  more  of  the  persons  named  in  it,"  and  that  "the  conse- 
quence of  this  is,  that  the  sheriff  rnay  execute  a  writ  issued  against 
several  partners  jointly,  either  on  their  joint  property  or  on  the  sepa- 
rate property  of  any  one  or  more  of  them,  or  both  on  their  joint  or 
their  respective  separate  property.  And  so  long  as  there  is  within  the 
sheriff's  bailiwick  any  property  of  the  partners,  or  any  of  them,  a 
return  of  nulla  bona  is  improper."  And  these  rules  have  now  been 
embodied  in  §   1935  of  the  Code. 

As  between  themselves  Tooker  &  Irwin  were  jointly  liable  for  the 
debts  of  Tooker,  Arnold,  &  Co.,  and  neither  can  complain  that  their 
joint  property  has  been  taken  to  satisf}'  such  joint  liabilit}*. 

The  fact  that  the  sheriff,  when  he  made  the  sale  of  this  property  on 
the  execution  in  favor  of  Jane  Irwin,  announced  that  he  sold  the  right, 
title,  and  interest  of  Tooker  &  Irwin,  or  either  of  them,  in  the  property, 
can  make  no  difference.  He  sold  all  he  had  the  right  to  sell  by  virtue 
of  his  execution,  and  if  he  sold  all  the  right,  title,  and  interest  of  Tooker 
&  Irwin  in  that  property,  he  sold  the  whole  of  it,  and  gave  good  title 
to  the  purchaser.  He,  therefore,  had  no  right  to  seize  an}r  of  that 
property  again  and  sell  it  by  virtue  of  the  plaintiffs'  execution,  and  his 
return  was  not  false. 

The  general  denial  contained  in  the  defendant's  answer  put  in  issue 


§6-] 


FIRM   DEBTS    AND    PARTNERS*   JOINT   DEBTS.  281 


the  material  allegations  of  the  complaint,  and  was  sufficient  to  authorize 
the  defence  asserted  by  the  defendant. 

The  judgment  should,  therefore,  be  reversed,  and  a  new  trial  granted, 
costs  to  abide  event. 

All  concur  except  Ruger,  Ch.  J.,  not  voting ;  Andrews,  J.,  concur- 


riug  in  result. 


Judgment  reversed. 


RICHARDS  v.  LE  VEILLE. 

•44  Neb.  3S :  62  X.  W.  304.     1895. 

Ragan,  C.  James  Richards  and  Gilbert  I.  Le  Veille  constituted  a 
co-partnership  under  the  firm  name  of  Richards  &  Co.,  domiciled  in 
Douglas  County,  Neb.,  and  engaged  in  the  business  of  contracting  and 
buildino-.  On  the  12th  of  June,  1891,  in  the  County  Court  of  said 
Douglas  County,  Grommes  &  Ullrich,  a  co-partnership  domiciled  in 
Chicago,  111.,  and  dealing  in  liquors  and  cigars,  recovered  a  judgment 
against  said  James  Richards  and  Gilbert  I.  Le  Veille  for  the  sum  of 
§338.70  on  a  promissory  note  theretofore  executed  by  the  said  James 
Richards  and  Gilbert  I.  Le  Veille  to  the  said  Grommes  &  Ullrich. 
On  the  8th  of  July,  1891,  an  execution  was  issued  on  this  judgment, 
and  delivered  to  a  constable,  who  seized  certain  of  the  co-partnership 
property  of  Richards  &  Co.  thereunder.  On  the  9th  of  July,  1891,  said 
James  Richards  brought  a  suit  in  equity  to  the  District  Court  of  Doug- 
las County  against  his  co-partner,  Le  Veille.  In  his  petition  Richards 
alleged  the  existence  of  the  co-partnership  between  himself  and  Le 
Veille,  the  insolvency  of  said  co-partnership,  and  that  the  judgment  of 
Grommes  &  Ullrich  was  not  for  a  debt  of  the  co-partnership  of  Richards 
&  Co.,  but  was  based  on  the  individual  debt  of  his  co-partner,  Le  Veille, 
to  Grommes  &  Ullrich  for  liquors  and  cigars  purchased  by  Le  Veille 
from  Grommes  &  Ullrich  for  the  former's  benefit.  Richards  prayed  for 
a  dissolution  of  the  co-partnership,  and  for  the  appointment  of  a  re- 
ceiver to  take  charge  of  the  assets  of  the  firm  of  Richards  &  Co.  A 
receiver  was  according!}'  appointed,  and  said  constable,  in  obedience 
to  an  order  of  the  court,  turned  over  the  property  of  the  co-partnership 
of  Richards  &  Co.  which  he  had  seized  on  the  execution  in  favor  of 
Grommes  &  Ullrich  to  said  receiver.  Grommes  &  Ullrich  and  the 
constable,  by  permission  of  the  court,  then  filed  a  petition  of  inter- 
vention in  the  action  of  Richards  against  Le  Veille,  claiming  a  lien 
upon  the  property  levied  upon  by  the  constable  by  virtue  of  such  lev}'. 
The  District  Court  found  and  decreed  that  the  interveners  had  no  lien 
upon  said  property  seized  by  the  constable,  and  ordered  the  receiver  to 
hold  and  apply  the  proceeds  of  the  sale  of  the  property  in  accordance 
with  the  further  order  of  the  court;  and  from  this  decree  Grommes  & 
Clinch,  and  Dingman,  the  constable,  have  appealed. 


282  THE   NATUKE   OF   A   PARTNERSHIP.  [CHAP.   III. 

The  only  issue  of  fact  presented  to  the  District  Court  was  whether 
the  judgment  of  Gromrues  &  Ullrich  against  James  Richards  and  Gil- 
bert I.  Le  Veille  was  founded  on  a  debt  of  the  co-partnership  of  Richards 
&  Co.,  or  the  debt  of  the  individual  member  of  such  co-partnership  ;  and 
from  the  order  made  by  the  District  Court  it  must  have  found  on  this 
issue  that  the  judgment  was  not  based  upon  the  debt  of  the  co-part- 
nership, and  the  evidence  justifies  this  finding.  Here,  then,  we  have 
an  insolvent  co-partnership,  the  assets  of  which  have  been  seized  on 
execution  for  the  satisfaction  of  the  individual  debt  of  the  members  — 
or  one  of  them  —  of  the  firm,  and  one  of  the  members  of  such  co-part- 
nership appealing  to  a  court  of  equity  for  a  decree  directing  that  the 
firm  debts  should  be  paid  out  of  the  assets  of  such  co-partnership  before 
such  assets  should  be  used  to  discharge  individual  debts  of  the  mem- 
bers of  such  firm.  The  ride  is  that,  where  a  co-partnership  is  insolvent, 
a  court  of  equity,  when  its  powers  are  invoked  to  that  end  in  a  proper 
proceeding,  either  by  a  member  of  such  co-partnership  or  by  a  co-part- 
nership creditor,  will  apply  the  assets  of  the  co-partnership  to  the  pay- 
ment of  the  firm  debts  to  the  exclusion  of  the  debts  of  the  individual 
partners.  Till's  Case,  3  Neb.  261 ;  Roop  v.  Herron,  15  Neb.  73  ;  Cald- 
well v.  Manufacturing  Co.,  17  Neb.  489;  Rothell  v.  Grimes,  22  Neb. 
526  ;  Banks  v.  Steele,  27  Neb.  138  ;  Tolerton  &  Stetson  Co.  v.  McLain, 
35  Neb.  725. 

This  rule  is  based  on  the  legal  presumption  that  the  creditors  of  a 
co-partnership  have  given  credit  to  the  firm  on  the  faith  of  the  co-part- 
nership assets  and  business,  while  the  debts  of  the  individual  members 
thereof  were  contracted  on  the  faith  and  credit  of  the  individual  respon- 
sibility and  property  of  the  members.  And  when  the  affairs  of  an 
insolvent  co-partnership  come  to  be  settled  by  a  court  of  equity  it  will 
apply  the  assets  in  accordance  with  such  legal  presumptions.  Saunders 
v.  Reilly,  105  N.  Y.  12,  relied  upon  by  counsel  for  appellants,  is  not 
opposed  to  this  rule.  In  that  case  a  sheriff*  levied  an  execution  issued 
on  a  judgment  against  the  individual  members  of  an  insolvent  co-part- 
nership upon  the  entire  firm  assets,  and  sold  them.  Subsequently  a 
creditor  of  such  co-partnership  obtained  a  judgment  against  it,  and  put 
an  execution  in  the  hands  of  the  sheriff,  which  he  returned  unsatisfied. 
The  co-partnership  judgment  creditor  then  sued  the  sheriff  for  making  a 
false  return,  and  the  court  held  that  the  sheriff  was  not  liable  as  the 
co-partnership  assets  could  be  levied  upon  and  sold  under  an  execution 
against  all  the  members  thereof  for  their  individual  debts. 

In  the  case  at  bar,  if  the  firm  creditors  of  Richards  &  Co.,  and  the 
members  of  such  firm,  had  remained  inactive,  and  permitted  the  con- 
stable, Dingman,  to  sell  the  co-partnership  assets  levied  upon,  such 
sale  would  not  have  been  invalid  because  the  co-partnership  assets  were 
sold  to  satisfy  the  individual  debts  of  the  co-partners.  A  partnership 
is  a  distinct  entity,  having  its  own  property,  debts,  and  credits.  For 
the  purposes  for  which  it  was  created,  it  is  a  person,  and  as  such  is 
recognized  by  the  law.     Roop  v.  Herron,  15  Neb.  73.     And  a  co-part- 


§  6.]  Flllil    DEBTS    AND    PARTNERS'    JOINT   DEBTS.  2S3 

nership,  even  though  in  failing  circumstances,  has  the  right  to  pay  a 
part  of  its  creditors  in  full,  to  the  exclusion  of  others,  so  long  as  such 
payments  are  made  with  an  honest  purpose.  Dietrich  v.  Hutchinson, 
20  Xeb.  52.  The  creditors  of  a  co-partnership,  merely  because  they  are 
creditors,  are  not  given  a  lien  by  law  upon  its  assets,  whether  the  firm 
be  solvent  or  insolvent.  If  the)-  were,  it  would  be  impossible  for  the 
co-partnership  to  transact  business,  as  every  person  who  purchased  any 
part  of  its  property  would  take  the  property  purchased  subject  to  such 
liens.  Nor  are  the  assets  of  a  co-partnership,  even  though  insolvent, 
held  in  trust  by  the  members  of  the  co-partnership  for  the  payment  of 
firm  debts.  A  co-partnership  ma}*  sell,  convey,  incumber,  and  dispose 
of  its  property  in  the  same  manner  that  an  individual  may  ;  and  the  co- 
partnership assets  may  be  levied  upon  and  sold  for  the  payment  of  the 
debts  of  the  co-partnership,  or  for  the  payment  of  the  debts  of  all  the 
individual  members  of  the  co-partnership,  in  the  same  manner  as  can 
the  assets  of  an  individual.  It  is  only  when,  in  a  proper  proceeding, 
instituted  by  a  member  of  the  insolvent  co-partnership,  or  by  a  creditor 
thereof,  that  a  court  of  equity  interferes,  and  applies  the  co-partnership 
assets  first  to  the  payment  of  the  co-partnership  debts.  And  such  appli- 
cation is  not  thus  made  because  the  co-partnership  assets  are  trust  funds 
for  the  payment  of  co-partnership  creditors,  nor  because  creditors  of  an 
insolvent  co-partnership  are  by  law  given  a  lien  thereon  to  secure  the 
payment  of  their  debts  ;  but  such  application  is  based  upon  the  equit- 
able doctrine  that  that  fund,  on  the  faith  of  the  existence  of  which  a 
credit  was  given,  should  be  applied  ic  equity  to  the  liquidation  of 
such  credit. 

The  decree  appealed  from  is  in  harmony  with  these  views,  and  it  is 
accordingly  affirmed. 


WHELAN  v.   SHAIN  et  al. 

115  Cal.  326:  47  Pac.  57.     1896. 

Belcher,  C.  On  January  5,  1895,  the  defendant  Joseph  E.  Shain 
commenced  an  action  against  William  Binz  and  L.  Martella  upon  their 
joint  promissory  note,  signed,  "  Win.  Binz.  L.  Martella,"  and  caused 
to  be  attached  certain  personal  property  belonging  to  a  co-partnership 
of  which  they  were  the  only  members.  On  January  1G,  1895,  judg- 
ment was  entered  in  the  action  that  he  "have  and  recover  from  L. 
Martella  and  William  Binz,  defendants,"  the  sum  of  $1,410.60,  as 
prayed  for.  On  January  8,  1895,  the  defendant  J.  S.  Reid  commenced 
an  action  against  the  same  defendants  as  co-partners,  doing  business 
under  the  firm  name  of  Binz  &  Martella,  upon  certain  partnership 
obligations,  and  caused  to  be  attached  the  same  property  that  had  been 
attached  by  Shain.  On  January  22,  1895,  judgment  was  entered  that 
he  "  have  and  recover  from  William  Binz  and  Lawrence  Martella,  co- 


284  THE    NATURE   OF   A   PARTNERSHIP.  [CHAP.  III. 

partners,"  the  sum  of  $986.48,  as  prayed  for.  Under  executions  issued 
on  both  of  the  said  judgments  the  plaintiff,  Whelan,  as  sheriff,  sold 
the  said  attached  property  for  the  sum  of  $1,200,  and,  after  deducting 
his  proper  fees  and  charges,  there  was  left  in  his  hands  the  sum  of 
$1,059.  Shain  and  Reid  each  claimed  and  demanded  of  the  plaintiff 
that  the  proceeds  of  the  said  sale  be  applied  in  satisfaction  of  his  judg- 
ment, and  the  plaintiff,  being  uncertain  as  to  how  the  money  should 
be  applied,  commenced  this  action,  setting  forth  the  facts,  and  asking 
that  the  defendants  be  required  to  interplead  and  set  up  their  respec- 
tive rights  to  the  mone}'  in  his  possession,  and  that  the  matter  be 
determined  by  the  court.  And  subsequently,  with  the  consent  of  the 
parties  and  under  an  order  of  court,  plaintiff  paid  the  money  into  court. 
The  defendants  answered  the  complaint,  each  setting  up  his  claim  and 
right  to  the  money  as  against  his  co-defendant.  Upon  the  issues  thus 
framed  the  case  was  tried,  it  being  admitted,  during  the  trial,  that  the 
property  sold  was  the  partnership  property  of  Binz  &  Martella.  The 
court  found  the  facts  and  gave  judgment  in  favor  of  defendant  Reid, 
from  which  judgment  and  an  order  denying  his  motion  for  a  new  trial 
defendant  Shain  appeals. 

The  law  is  well  settled  in  this  State  that  partnership  property  must 
first  be  applied  to  the  payment  of  partnership  debts.     "  The  debts  of  a 
partnership  must  be  discharged  from   the  joint   property  before   any 
portion  of  it  can  be  applied  to  the  individual  debts  of  the  partners." 
Chase  v.  Steel,  9  Cal.  64.     "The  fact  that  an  individual  creditor  ob- 
tains judgment,  issues  execution,  and  levies  on  firm  property,  gives 
him  no  right  to  the  property  as  against  firm  creditors  who  have  not 
obtained  judgment."'     Conroy  v.  Woods,  13  Cal.  626  ;    73  Am.  Dec. 
605.     "  It  has  been  repeatedly  decided  by  this  court  that  the  creditors 
of  a  partnership  are  entitled  to  a  preference  over  the  creditors  of  the 
individual  partners  in  the  payment  of  their  debts  out  of  the  partnership 
property,  or  moneys  arising  therefrom,  without  regard  to  the  priority 
of  attachment  liens."     Bullock  v.  Hubbard,  23  Cal.  501  ;  83  Am.  Dec. 
130.     And  see  also  Jones  v.  Parsons,  25  Cal.  100;  Robinson  v.  Tevis, 
38  Cal.  611;   Furniture  Co.  v.   Halsey,   54    Cal.   315;  and  Bank  v. 
Mitchell,  58  Cal.  42.     In  his  answer  Shain  alleged,  on  his  information 
and  belief,  in  substance,  that  the  note  on  which  he  obtained  judgment 
was  executed  by  Binz  &  Martella  as  co-partners,  and  was  a  partner- 
ship contract  and  obligation,   and  that  the  money  received   thereon 
from  the  payee  was  invested  and  used  in  and  about  the  partnership 
business,  and  in  furtherance  of  its  objects.     The  court,  however,  found 
against  him  on  this  issue,  to  the  effect  that  the  said  note  was  not  exe- 
cuted by  Binz  &  Martella  as  co-partners  and  was  not  a  partnership 
obligation,  and  that  the  money  obtained  thereon  was  not  invested  or 
used  in  or  about  the  said  partnership  business,  or  in  furtherance  of  its 
objects,  "but  that  the  obligation  to  pay  said  sum  was  the  obligation 
of  William  Binz  and  L.  Martella  as  individuals,  and  not  otherwise." 
There  was  evidence  tending  to  support  this  finding ;  but,  if  it  were 


§6.]         FIRM  DEBT  18  DEBT  OF  EACH  PARTNER.         285 

otherwise,  under  the  law  laid  down  in  Bank  v.  Mitchell,  siqyra,  the  re- 
sult would  not  be  changed.  The  court  below  was  right,  therefore,  in 
adjudging  that  respondent  Reid  was  entitled  to  have  the  said  money 
first  applied  to  the  payment  of  his  judgment.  The  judgment  and  order 
appealed  from  should  be  affirmed. 

Searls,  C,  and  Haines,  C,  concurred. 

Per  Cukiam.  For  the  reasons  given  in  the  foregoing  opinion,  the 
judgment  and  order  appealed  from  are  affirmed,  McFaeland,  J., 
Temple,  J.,  Henshaw,  J. 


§  6.  Firm  Debt  is  Debt  of  each  Partner. 

NEWMAN   v.  BAGLEY  and  Trustee. 
16  Pick.  (Mass.)  570.     1835. 

.  The  trustee  admitted  that  be  was  indebted  to  the  defendant,  but 
alleged  and  proved  that  the  defendant  had  assigned  all  of  his  property 
in  trust  for  the  payment  of  debts  owing  by  partnerships  of  which  de- 
fendant was  a  member. 

C.  A.  Dewey  and  Sumner,  for  the  trustee. 

Bishop  and  Nash,  for  the  plaintiff. 

Wilde,  J.  .  .  .  But  it  is  objected  that  a  partner  cannot  assign  his 
separate  property  to  pay  partnership  debts,  so  as  to  avail  against  the 
separate  creditors  of  the  assignor.  This  objection,  however,  does  not 
appear  to  be  well  founded.  It  is  true,  that  the  creditors  of  an  indi- 
vidual partner  cannot  attach  partnership  property  to  the  prejudice  of 
partnership  creditors ;  because  a  partner  has  no  distinct  and  separate 
property  in  the  funds  of  the  partnership,  until  the  debts  of  the  partners 
are  paid  ;  but  tins  reason  fails  in  regard  to  an  assignment  by  a  partner 
of  his  separate  property.  That  is  equally  liable  to  attachment  by  his 
own  creditors,  or  the  creditors  of  the  firm,  and  an  assignment  to  pay 
either  is  good.  Trustee  discharged.  " 


HORNBLOWER,   J.,    in  CURTIS   v.   HOLLINGSHEAD   et  al. 

2  Green  (N.  J.  L.),  402.     1834. 

I  am  not  prepared  to  sustain  the  doctrine  that  each  partner  is  a  debtor 
to  the  whole  amount  of  a  partnership  debt,  in  such  a  sense  that  a  cred- 
itor of  the  firm  may  proceed  against  one  partner  by  attachment,  for  a 
partnership  debt,  if  the  rest  of  the  partners  are  in  this  State.  In  the 
case  of  partnerships,  the  firm  is  the  contracting  party,  not  the  individ- 
uals' composing  the  "firm ;  the  credit  is  given  to  the  firm;  the  partner- 
ship the  ideal  person,   formed  by  the  union  of  interests,  is  the  legal 


286  THE    NATURE    OF   A    PARTNERSHIP.  [CHAP.  III. 

debtor.  A  partnership  is  considered  in  law  as  an  artificial  person  or 
being,  distinct  from  the  individuals  composing  it.  It  is  treated  as  such 
in  law,  and  in  equity.  Its  property  is  first  to  be  appropriated  to  the 
payment  of  its  debts.  The  individual  partners  are  indeed  liable  and 
bound  to  the  extent  of  their  separate  property  for  the  partnership  debts. 
They  may  therefore  be  called  debtors,  but  they  are  only  constructively, 
or  rather  consequentially,  so  ;  their  individual  liability  is  a  legal  conse- 
quence ;  it  flows  from  the  reinecby  ;  it  is,  in  some  respects,  like  the  case 
of  a  husband,  who  becomes  bound  for  the  debts  contracted  by  his  wife 
dum  sola  ;  they  are  not  his  debts,  strictly  speaking,  though  he  is  liable 
for  them,  if  sued  during  coverture.  The  very  affidavit  filed  in  this  case 
shows  that  the  firm  of  W.  M.  Cade  &  Co.  is  the  debtor,  and  not  the 
defendant  in  his  individual  capacity.  An  intelligent  and  honest  plaintiff 
would  hardly  venture  to  make  affidavit  that  Curtis  was  indebted  to  him 
in  a  certain  amount,  for  goods  sold  and  delivered  to  him,  if  they  had 
been  sold  and  delivered  to  W.  M.  Cade  &  Co.  It  is  true  if  one  partner 
be  sued  at  law  for  a  partnership  debt,  he  cannot  prevent  a  recovery, 
unless  he  pleads  in  abatement ;  but  then  that  he  may  successfully  plead 
in  abatement,  shows  it  is  not  his  individual  debt  in  such  a  sense  that 
he  may  be  sued  for  it  alone.  If  he  was  the  real,  actual  debtor ;  if  it 
was  a  debt  contracted  b}*,  and  due  from  him  to  the  plaintiff,  in  the 
strict,  legal  sense  of  the  term,  he  could  not  defeat  the  action  by  such 
a  plea.  My  opinion  is,  therefore,  that,  under  the  attachment  act,  the 
creditor  of  a  firm  cannot  sue  out  an  attachment  against  one  of  the  firm 
(who  may  have  absconded)  for  a  partnership  debt,  if  the  other  partners 
reside  here.  But  if  all  the  partners  have  absconded,  then  an  attach- 
ment will  lie  against  them  all,  as  absconding  debtors,  under  the  pro- 
visions of  the  first  section.  Nor  can  an  attachment  issue  against  a 
non-resident  partner,  if  the  other  partners  reside  here  ;  but  if  all  the 
partners  reside  abroad,  then,  under  the  twenty-seventh  section,  an 
attachment  may  issue  against  all,  or  any  of  them,  or,  if  dead,  then 
against  their  non-resident  representatives. 


BANK  OF  BUFFALO  v.    THOMPSON  et  al. 

121  N.  Y.  280.     1890. 

Earl,  J.  On  the  24th  day  of  April,  1882,  John  Thompson  was 
indebted  to  the  plaintiff  upon  his  individual  promissory  notes,  and  was 
then  carrying  on  business  in  his  own  name,  and  in  that  way  had  dealings 
with  the  plaintiff.  On  that  da}-  he  executed  to  it  a  mortgage  upon  real 
estate  situated  in  the  city  of  Buffalo,  conditioned  as  follows  : 

"  Provided  always,  and  these  presents  are  upon  this  express  condition,  that  if 
the  said  John  Thompson,  his  heirs,  executors,  or  administrators,  shall  and  do 
well  and  truly  pay  or  cause  to  be  paid  unto  the  said  The  Bank  of  Buffalo  or 
its  assigns,  the  just  and  full  sum  of  all  promissory  notes,  checks,  or  bills  of 


K  6.]  FIRM  DEBT  IS  DEBT  OF  EACH  PARTNER.         287 

exchange  which  have  been  or  which  shall  at  any  time  hereafter  be  made, 
drawn,  indorsed,  or  accepted  by  the  said  John  Thompson  and  which  have  been 
or  shall  at  any  time  be  discounted  by  the  said  bank  for  his  benefit,  when  and 
as  the  same  shall  become  dne  and  payable,  and  shall  also  pay  upon  demand 
any  and  all  overdrafts  made  by  him  and  all  balances  of  account,  and  all  sums 
of  money  which  now  are  or  shall  at  any  time  be  due  or  owing  by  him  to  said 
bank,  upon  any  account  whatever,  then  this  conveyance  shall  be  void ;  other- 
wise to  remain  in  full  force  and  virtue.  This  mortgage  being  given  and 
intended  as  a  collateral  and  continuing  security  for  the  payment  of  all  such 
indebtedness  to  the  amount  of  seventy-five  thousand  dollars." 

Subsequently  to  the  execution  and  delivery  of  that  mortgage  Thomp- 
son continued  his"  individual  dealings  with  the  plaintiff,  and  it  dis- 
counted for  his  benefit  many  notes  made  or  indorsed  by  him.  Several 
years  after  the  mortgage  was  given,  Thompson  formed  a  co-partnership 
with  three  other  persons,  under  the  firm  name  of  Reynolds,  Thompson, 
&  Co.,  and  the  firm  carried  on  the  business  under  that  name,  and  the 
plaintiff  discounted  for  the  firm  several  notes  made  and  indorsed  by 
Thompson  in  the  firm  name.  The  plaintiff  claims  that  these  firm  notes 
are  secured  by  the  mortgage,  and  the  defendants  contend  that  they  are 
not  so  secured,  and  their  contention  has  been  sustained  by  the  court 
below,  and  mainly,  it  is  said,  upon  the  authority  of  First  National  Bank 
of  Batavia  v.  Tarbox,  38  Hun,  57. 

We  think  the  court  below  properly  construed  the  condition  of  the 
mortgage.  It  is  clear  that  at  the  time  of  the  execution  of  the  mortgage, 
the  parties  did  not  contemplate  any  firm  indebtedness,  or  any  indebted- 
ness of  a  firm  of  which  Reynolds  might  be  a  member.  The  plaintiff 
was  dealing  with  him  individualby,  and  it  was  obtaining  security  for  his 
individual  and  personal  obligations,  and  a  fair  construction  of  the  lan- 
guage shows  that  it  was  intended  to  secure  such  obligations  and  such 
only.  The  language  is  broad  and  general,  and  carefully  framed  so  as 
to  make  sure  that  all  such  obligations  should  be  covered.  In  ordinary 
commercial  language  the  obligation  of  a  firm  would  not  be  spoken  of 
as  the  obligation  of  any  one  of  its  members,  and  a  firm  is  regarded  as 
an  entity  distinguished  from  all  the  individual  members  of  which  it  is 
composed.  In  Parsons  on  Partnership,  346,  it  is  said  :  "  A  partnership 
is  a  legal  bod}'  by  itself.  "We  do  not  say  it  is  a  corporation,  because 
it  wants  some  of  the  most  important  elements  of  incorporation,  but  we 
say  it  is  a  bod}'  by  itself,  and  is  so  recognized  by  the  law  for  some  pur- 
poses, and  should  be  —  always  in  a  proper  way,  and  to  a  proper  degree 
—  for  all  purposes ;  and  among  these  purposes  is  a  placing  of  its 
relation  to  its  creditors  on  the  basis  of  contracting  its  own  debts,  and 
having  its  own  creditors,  and  possessing  its  own  property,  which  it 
applies  to  the  payment  of  its  debts."  It  was  held  in  Fitzgerald  /•. 
Grimmell,  64  Iowa,  201,  that  a  partnership  under  the  statutes  of  that 
State  was  a  legal  entity,  known  to  and  recognized  by  law.  It  is  pro- 
bably the  most  accurate  to  say  that  a  partnership  is  not  strictly  a  legal 
entity,    distinguished  from  the  individuals  composing   it.     Lindley  on 


238  THE   NATURE   OF   A   PARTNERSHIP.  [CHAP.  III. 

Partnership,    2d   Am.   ed.    25 ;  Faulkner  v.   Hyman,   142  Mass.   53. 
In  Lindley  on  Partnership,  page  110,  it  is  said  :  "  Partners  are  collec- 
tively a  firm.     Merchants  and  lawyers  have  different  notions  respecting 
the   nature  of  a  firm.     Commercial  men  and  accountants  are   apt  to 
look  upon  a  firm  in  the  light  in  which  lawyers  look  upon  a  corporation, 
i.  e.,  as  a  body  distinct  from  the  members  composing  it,  and  having 
rights  and  obligations  distinct  from  those  of  its  members.     Hence,  in 
keeping  partnership  accounts,  the  firm  is  made  debtor  to  each  partner 
for  what  he  brings  into  the  common   stock,  and  each  partner  is  made 
debtor  to  the  firm  for  all  that  he  takes  out  of  the  stock.     In  the  mer- 
cantile view,  partners  are  never  indebted  to  each  other  in  respect  of 
partnership  transactions,  but  are  always  either  debtor  to  or  creditors 
of  the  firm."     But  this,  the  learned  author  says,  is  not  the  legal  notion 
of  a  firm,  and  that  the  firm  is  not  recognized  by  lawyers  as  distinct  from 
the  members  composing  it. 

This  mortgage  must  be  regarded  as  a  commercial  instrument,  exe- 
cuted in  commercial  transactions,  and  must  be  construed  as  ordinary 
commercial  men  would  understand  the  language  used ;  and  we  think 
that  among  business  men  a  distinction  is  made  between  the  firm,  as  an 
entity,  and  the  members  who  compose  it,  and  that  this  language  would 
not  be  understood  as  broad  enough  to  cover  the  indebtedness  of  a  firm 
of  which  Thompson  was  a  member,  and  for  whose  debts,  jointly  with  the 
other  members  of  the  firm,  he  could  be  made  responsible. 

We  are,  therefore,  of  opinion  that  the  judgment  below  was  right  and 

should  be  affirmed.     All  concur. 

Judgment  affirmed. 


HALLOWELL  v.   BLACKSTONE   NAT.   BANK. 

151  Mass.  359:  28  N.  E.  281.     1891. 

Holmes,  J.  This  is  a  bill  to  redeem  certain  stock  given  by  One 
Smith,  the  plaintiffs  insolvent,  to  the  defendant  as  collateral  security 
for  a  loan  to  Smith.  The  main  question  is  whether  the  defendant  can 
hold  the  stock  as  security,  not  only  for  the  loan  mentioned,  but  also  for 
two  acceptances  of  a  firm  of  which  Smith  was  a  member,  which  accept- 
ances the  defendant  had  discounted  before  the  date  of  the  loan  in 
question.  The  note  given  by  Smith  for  the  loan  authorizes  the  defend- 
ant to  sell  the  stock  "  on  the  non-performance  of  this  promise,  said 
bank  applying  the  net  proceeds  to  the  payment  of  this  note,  and 
accounting  to  me  for  the  surplus,  if  any."  It  then  goes  on,  and  these 
are  the  important  words,  "  and  it  is  hereby  agreed  that  such  surplus, 
or  any  excess  of  collaterals  upon  this  note,  shall  be  applicable  to  any 
other  note  or  claim  against  me  held  by  said  bank." 

The  counsel  for  the  plaintiff  based  his  argument  on  the  proposition 
that  the  right  to  apply  the  excess  of  collaterals  to  any  other  note  or 


§  6.]  FIRM   DEBT   IS    DEBT    OF   EACH    PARTNER.  2S9 

claim  was  conditional  upon  Smith's  non-performance  of  his  promise. 
"We  think  it  doubtful  at  least  whether  that  is  the  true  construction  of  the 
words  which  we  have  quoted.  We  are  disposed  to  read  the  agreement 
as  an  absolute  pledge  or  mortgage  of  the  securities  for  other  notes  and 
claims.  But  if  this  be  not  so  we  are  of  opinion  that  Smith  did  not 
perform  his  promise  within  the  meaning  of  the  note.  The  bank  de- 
manded payment  of  Smith  on  January  3,  1889,  and  he  made  partial 
payments,  but  failed  to  pay  the  residue,  and  requested  the  bank  to  make 
the  balance  a  time  loan,  which  the  bank  refused.  This  was  a  non- 
performance of  his  promise  by  Smith.  It  is  true  that  the  report  states 
that  it  was  understood  that  the  demand  should  not  be  pressed  without 
further  notice.  But  this  did  not  take  away  the  effect  of  the  breach. 
It  merely  called  on  the  bank  to  give  notice  before  taking  further  steps, 
such  as  selling  the  securit}*,  and  this  it  did.  "We  neither  construe  the 
report  as  meaning,  nor  do  we  infer  from  it,  that  the  breach  of  Smith's 
promise  by  his  failure  to  pay  on  demand  was  waived  by  the  bank.  On 
January  3d,  if  not  before,  the  bank's  right  vested  to  apply  any  excess 
of  collaterals  upon  other  claims. 

The  question  remains  whether  the  bank  is  entitled  to  hold  the  secu- 
rity for  the  bills  which  were  accepted  by  Smith's  firm  and  not  by  him 
individually.  It  cannot  be  denied  that  the  acceptances  were  "claims 
against  him,"  and  that  the  words  used  in  his  note  were  broad  enough 
to  embrace  firm  acceptances,  unless  there  is  some  reason  in  the  con- 
tract, the  circumstances,  or  mercantile  practice,  to  give  them  a  narrower 
meaning.  Manufacturing  Co.  v.  Allen,  122  Mass.  467 ;  Chuck  v. 
Freen,  Moody  &  M.  259.  If  Smith  had  had  private  dealings  and  a 
private  account  with  the  bank  as  a  depositor,  and  his  firm  also  had  had 
dealings  and  an  account  there,  and  Smith  had  given  security  in  the 
terms  of  his  note  in  order  to  be  allowed  to  overdraw  or  to  obtain  a 
discount,  it  may  be  that  the  generality  of  the  language  would  be  re- 
strained to  the  line  of  dealings  in  the  course  of  which  it  is  used.  Ex 
parte  McKenna  (City  Bank  Case),  3  De  Gex,  F.  &  J.  629.  See 
Lindl.  Partn.  (oth  ed.)  119,  and  note.  But  we  are  called  on  to  con- 
strue a  printed  form  used  by  the  bank,  and  presented  by  it  for  those 
who  borrow  from  it  to  sign.  The  question  is,  what  is  the  reasonable 
interpretation  of  such  words?  When  insisted  on  as  a  general  formula 
to  be  used  by  would-be  borrowers,  irrespective  of  any  special  course  of 
business  of  the  particular  person  who  signs  it,  which,  for  the  matter  of 
that,  there  does  not  appear  to  have  been  in  this  case.  For  all  that 
appears,  the  note  mentioned  may  have  been  the  only  transaction  that 
ever  took  place  between  the  defendant  and  the  plaintiff  alone.  The 
printed  form,  it  may  be  assumed,  would  have  been  used  by  the  bank 
equally  in  a  case  where  the  borrower  was  the  principal  man  in  his  firm, 
and  the  only  one  known  to  the  bank,  was  borrowing  for  his  firm  daily, 
and  had  never  borrowed  for  himself  but  in  this  instance,  and  in  a  case 
whore  the  borrower's  membership  in  a  firm  whose  notes  the  bank  held 
was  unknown.     This  being  so,  in  the  opinion  of  a  majority  of  the  court 

19 


290  THE    NATURE   OF   A   PARTNERSHIP.  [CHAP.  III. 

there  is  no  sufficient  reason  for  not  giving  the  words  their  full  legal 
effect.  The  clause  pledging  the  property  for  an}r  other  claim  against 
the  debtor  is  not  inserted  with  a  view  to  certain  specific  debts,  but  as  a 
drag-net  to  make  sure  that  whatever  comes  to  the  creditor's  hands  shall 
be  held  by  the  latter  until  its  claims  are  satisfied.  Corey  on  Accounts 
and  Lindle}'  on  Partnership  have  made  it  popular  to  refer  to  a  mercan- 
tile distinction  between  the  firm  and  its  members.  But  we  have  no 
doubt  that  our  merchants  ai*e  perfect^  aware  that  claims  against  their 
firms  are  claims  against  them,  and  when  a  merchant  gives  securit}-  for 
any  claim  against  him,  and  there  is  nothing  to  cut  down  the  literal 
meaning  of  the  words,  he  must  be  taken  to  include  claims  against  him 
as  partner. 

Decree  accordingly. 


§  6.    Sole  Debt  of  a  Partner  for  Firm  Benefit. 

WILLIAMS    v.   GILLIES. 
75  N.  Y.  197.     1878. 

Church,  C.  J.  This  appeal  is  on  behalf  of  the  defendant  Gillies, 
and  is  from  a  judgment  for  deficiency,  arising  on  a  sale  under  a  fore- 
closure of  a  mortgage  executed  by  one  Dobbs  to  the  plaintiffs  testator 
to  secure  the  balance  of  purchase  money  upon  the  sale  and  purchase  of 
several  unimproved  lots  in  the  city  of  New  York.  The  mortgage  was 
given  to  secure  a  bond  executed  by  said  Dobbs  for  such  purchase 
money.  The  defendant  Gillies  was  charged  by  the  Special  and  Gen- 
eral Term,  on  the  ground  that  he  was  a  co-partner  with  Dobbs  in  the 
purchase,  and  was  liable  as  an  obligor  of  the  bond.  The  complaint 
alleges  partnership  generally,  but  claims  that  Gillies  is  personally  lia- 
ble for  one-quarter  of  the  deficiency  upon  the  ground  that  he  assumed 
the  payment  of  that  amount  in  a  deed  which  he  received  of  one-quarter 
interest  in  the  premises.  The  judge,  however,  found  against  a  delivery 
of  the  deed,  and  the  only  question  is  whether  a  liability  exists  by  virtue 
of  a  partnership. 

The  judge  finds  that  Dobbs  and  Gillies  and  one  Raynor  agreed  to 
make  the  purchase  on  joint  account  on  speculation,  Raynor  to  have 
half  and  Gillies  and  Dobbs  one-quarter  each  ;  that  Dobbs  was  to  take 
the  title  and  give  back  a  bond  and  mortgage,  and  each  was  to  contrib- 
ute his  proportion  of  the  purchase  money  from  his  individual  means, 
and  divide  the  profits  pro  rata. 

To  sustain  this  judgment  requires  the  adoption  of  several  proposi- 
tions, all  of  which  I  find  it  difficult  to  approve.  An  existing  part- 
nership may  purchase  real  estate  with  partnership  funds  and  for 
partnership  purposes,  and  it  is  immaterial  in  whose  name  the  title  is. 
It  is  regarded  in  equity,  as  between  the  partners  and  creditors,  as  per- 


§  6.]      SOLE  DEBT  OF  A  PARTNER  FOR  FIRM  BENEFIT.       201 

• 

sonal  estate.  A  trust  results  from  the  payment  of  the  consideration 
with  partnership  funds  in  favor  of  the  firm.  It  is  also  well  settled  that 
a  partnership  may  exist  for  the  purpose  of  dealing  in  real  estate,  and 
there  is  considerable  authority,  and  perhaps  a  preponderating  weight  of 
authority,  that  such  agreements  maybe  proved  by  parol,  without  violat- 
ing the  statute  of  frauds.  The  tendency  of  the  decision  in  this  State  is 
in  that  direction,  although  the  point  had  never  been  definitely  settled 
by  this  court  in  a  case  where  the  question  was  necessary  to  the 
decision. 

I  shall  assume  the  validity  of  the  parol  agreement  in  this  case,  but  in 
doing  so  it  is  not  intended  to  affirm  the  proposition  unqualifiedly  that 
every  parol  agreement  between  two  persons  to  purchase  a  specific  par- 
cel of  real  estate,  and  pay  for  the  same  from  their  individual  means, 
and  take  the  deed  in  the  name  of  one,  although  with  a  view  of  selling 
it  at  a  profit,  is  valid  and  binding,  upon  the  ground  that  it  constitutes 
a  partnership  in  an}'  commercial  sense,  and  is  therefore  not  violative  of 
the  statute  of  frauds.  In  some  of  the  cases  where  this  doctrine  is  held, 
there  were  other  circumstances  which  obviated  the  objection,  and  there 
are  respectable  authorities  against  the  doctrine.  I  cite  a  few  of  those 
examined  on  the  question.  Chester  v.  Dickerson,  54  N.  Y.  1  ;  Briggs 
v.  Partridge,  64  Id.  471  ;  Traphagen  v.  Bust,  67  Id.  30  ;  Smith  v.  Burn- 
ham,  3  Summer,  435  ;  Patterson  v.  Ware,  10  Ala.  447,  694  ;  Bird  v. 
Morrison,  12  Wis.  152  ;  Story  on  Partnership,  §§  83,  139,  and  cases 
cited  ;  Parsons  on  Partnership,  368  ;  Dale  r.  Hamilton,  5  Hare,  369  ; 
Buchan  v,  Sumner,  2  Barb.  Ch.  336  ;  Patterson  v.  Brewster,  4  Edw. 
Ch.  352,  364  ;  Lindl.  on  Partn.  83,  and  cases  cited. 

Conceding  a  communitj-  of  interest,  and  in  some  sense  a  partnership, 
it  does  not  follow  that  all  the  incidents  and  liabilities  of  a  commercial 
partnership  attach.  The  transaction  must  be  construed  with  reference 
to  the  character,  of  the  propel  ty  and  the  legal  rules  applicable  to  it. 
The  bond  in  question  was  executed  by  Dobbs  in  his  individual  name. 
Neither  the  name  of  Gillies  appears  in  the  bond,  nor  is  there  anything 
appearing  indicating  that  it  was  executed  on  behalf  of  or  for  the  bene- 
fit of  any  other  person.  It  is  a  general  rule  that,  in  order  to  bind  a 
firm  upon  an  instrument  executed  by  one  of  its  members,  it  must  be 
executed  in  the  name  of  the  firm,  or,  in  other  words,  it  must  purport  to 
be  executed  by  the  firm.  Especially  is  this  true  in  the  cases  of  sealed 
instruments  and  promissory  notes.  See  cases  before  cited.  National 
Bank  of  Salem  v.  Thomas,  47  N.  Y.  15  ;  Parsons  on  Partn.  255  ;  Par- 
sons on  Bills,  130;  City  of  Providence  v.  Miller,  11  R.  I.  272;  Story 
on  Partn.  §§  102,  135,  etc. 

This  objection  was  sought  to  be  overcome  by  the  General  Term,  by 
the  position  that  the  individual  name  of  Dobbs  might  be  regarded  as 
the  agreed  name  of  the  firm  for  the  purpose  of  executing  the  bond.  If 
this  was  so,  we  should  at  once  encounter  the  rule  that  in  a  conve3'ance, 
or  any  act  required  to  be  by  deed,  the  authority  to  execute  it  must  be 
conferred  by  deed.     Warrall  v.  Mann,  1  Seld.  229,  239  ;  12  Wend.  53, 


292  THE   NATURE    OF    A    PARTNERSHIP.  [CHAP.  IIL 

and  note.  This  court  has  recently  held  that  oral  authorit}'  to  enter 
into  a  contract  to  purchase  lands  would  not  bind  the  principal  upon  a 
contract  entered  into  by  the  agent  in  his  own  name  under  seal.  Briggs 
v.  Partridge,  64  N.  Y.  357.  But  with  great  respect  I  cannot  concur  in 
the  view  taken  that  the  name  of  Dobbs  can  be  regarded  as  the  firm 
name,  or  that  it  represented  any  one  but  himself  upon  this  bond.  There 
is  no  such  finding,  and  no  evidence  to  warrant  such  a  finding.  True, 
the  finding  is  that  Dobbs  executed  the  bond  with  the  consent  and  au- 
thority of  Gillies  and  Raynor,  but  this  does  not  necessarily  imply  that 
he  was  to  execute  it  as  their  act.  He  was  to  execute  it  in  his  individ- 
ual name,  and  all  the  facts  imply  that  it  was  to  be  his  individual  act, 
in  pursuance  of  the  verbal  agreement  by  which  they  were  to  share  in 
the  profits.  If  we  look  at  the  evidence,  it  repels  the  idea  of  a  joint 
obligation,  and  tends  to  show  that  Gillies  refused  to  take  the  deed  and 
give  the  bond  and  mortgage,  because  he  was  unwilling  to  be  bound. 
It  is  competent  for  co-partners  to  agree  to  carry  on  the  business  of  the 
firm  in  the  name  of  an  individual  member.  "The  question  in  all  cases 
is  whether  the  name  used,  and  to  which  credit  is  given,  is  that  of  the 
firm,  or  a  name  which  the  firm  has  adopted  and  used  as  a  name  to 
designate  the  partnership."  National  Bank  of  Salem  v.  Thomas,  47 
N.  Y.  15.     Per  Allen,  J. 

In  Ontario  Bank  v.  Hennessy,  48  N.  Y.  545,  under  a  co-partnership 
agreement,  where  one  of  the  members  was  to  transact  all  the  business 
of  the  firm,  an  agreement  that  the  business  was  to  be  done  in  the  name 
of  that  member  was  inferred.  I  do  not  complain  of  the  propriety  of  the 
inference  in  that  case,  but  it  is  left  in  doubt  whether  the  court  assented 
to  it.  One  of  the  commissioners  agreed  to  the  judgment  upon  another 
ground,  and  a  third  one  agreed  to  it,  but  it  ddes  not  appear  upon  what 
ground  ;  one  dissented  and  one  did  not  sit.  Here  was  but  a  single  act, 
that  of  taking  title  and  securing  the  purchase  money,  and  the  presump- 
tion is  that  the  name  used  in  the  bond,  mortgage,  and  deed  was  identi- 
cal, and  there  is  not  the  slightest  circumstance  tending  to  establish  that 
the  so-called  firm  intended  to  execute  the  bond  any  more  than  the 
mortgage,  or  take  the  title  as  tenants  in  common.  The  substance  of 
the  transaction  was  that  Dobbs  was  to  take  title  and  give  his  bond 
and  mortgage  in  his  own  name,  and  representing  himself  and  no  one 
else  ;  and  this  is  not  inconsistent  with  the  agreement  that  Raynor  and 
Gillies  were  to  have  an  interest  in  the  speculation.  The  question  is, 
who  executed  this  bond,  and  upon  this  point  the  intention  of  the  par- 
ties is  material.  2  Kent's  Com.  25.  If  the  bond  was  not  executed  in 
the  name  of  the  firm,  nor  with  the  intention  that  it  should  be  their  act, 
can  the  vendor  claim  any  rights  against  the  others?  I  think  not.  He 
transferred  the  land  to  Dobbs  and  received  $5,000  in  cash,  and  a  mort- 
gage upon  the  premises,  and  the  individual  bond  of  Dobbs,  to  secure 
the  balance  of  the  purchase-money.  This  was  the  security  which  he 
bargained  for  and  received  and  intended  to  accept.  So  far  as  he  gave 
credit  to  any  one  it  was  to  Dobbs.     It  is  probable,  if  not  presumable, 


§  6.]  FIRM   DEBT   CONVERTED   INTO    SEPARATE   DEBT.  29 


n 


that  he  knew  all  the  facts.  Raynor  was  his  son-in-law  and  the  broker  who 
negotiated  the  sale.  I  think  the  case  fairly  shows  that  all  the  parties, 
including  the  vendor,  intended  the  transaction  to  be  precisely  what  it 
purports  on  the  face  of  the  papers,  and  that  neither  of  them  intended  or 
supposed  that  any  one  was  liable  upon  the  bond  but  Dobbs.  Raynor 
afterward  became  liable  for  the  proportion  of  the  bond  represented  by 
his  interest,  under  the  parol  agreement,  by  accepting  a  deed  assuming 
such  liability ;  but  Gillies  refused  to  accept  the  deed  tendered  him  for 
his  interest  and  assume  that  proportion  of  the  bond  and  mortgage,  and 
judgment  was  not  even  asked  against  them  as  co-obligors.  The  liabil- 
ity based  upon  partnership  seems  to  have  been  an  afterthought.  It  is 
only  by  artificial  and  unnatural  construction  and  inference,  changing 
the  real  character  of  the  transaction  from  what  it  was,  that  the  liability 
of  Gillies  can  be  established,  and  I  do  not  think  there  is  any  legal 
warrant  for  it.  Whatever  validity  there  may  be  in  the  verbal  agree- 
ment, it  was  an  agreement  inter  sese,  with  which  the  vendor  had  no 
concern,  and  which  he  cannot  avail  himself  of. 

The  conclusion  of  the  Vice-Chancellor  in  Patterson  v.  Brewster,  4 
Edw.  Ch.  364,  where  a  similar  attempt  was  made,  is  appropriate  here. 
He  said  :  "  The  court  must  therefore  intend  that  he  made  the  contract 
to  sell  on  the  personal  responsibility  of  Wetmore  and  Havens,  and 
upon  the  mortgages  by  way  of  further  security.  He  must  not  complain 
if  there  is  no  other  or  better  remed}'  than  the  securities  which  he  holds 
can  afford  him."  The  payments  upon  the  bond  and  mortgage  by  Gillies 
may  tend  to  confirm  the  verbal  arrangement  that  he  was  to  have  an 
interest,  but  the}-  have  no  effect  in  changing  the  character  of  the  bond 
from  an  individual  to  a  joint  obligation.  The}-  are  as  consistent  with 
the  former  as  the  latter.  I  am  unable  to  find  any  principle  or  prece- 
dent which  will  justify  a  court  in  holding  Gillies  personally  liable  as  a 
joint  obligor  of  this  bond. 

The  judgment  to  that  extent  must  therefore  be  reversed. 

All  concur,  Miller  and  Earl,  JJ.,  absent  at  argument. 


§  6.    Firm  Debt  Converted  Into  Separate  Debt. 

MOTLEY  v.  WICKOFF. 

71  X  .W.  (Mich.)  520.     1897. 

Montgomery,  J.  This  case  was  determined  by  the  Circuit  Court 
upon  an  agreed  state  of  facts.  The  defendant  and  one  Gill,  as  co- 
partners, became  indebted  to  the  plaintiff  in  the  sum  of  about  Si 40.  In 
April,  1801,  AVickoff  retired  from  the  firm  of  Wickoff  &  Gill,  and  Gill, 
in  consideration  of  the  partnership  property  all  being  turned  over  to 
him,  assumed  the  payment  of  all  the  partnership  debts.     After  the  dis- 


294  THE   NATURE    OF   A   PARTNERSHIP.  [CHAP.  IIL 

solution  of  the  firm,  and  before  this  action  was  brought,  the  amount 
had  been  reduced  from  8140  to  8116,  by  payments  to  plaintiff  made  by 
Gill.     It  further  appears  that  Gill,  shortly  after  the  dissolution,  stated 
to  plaintiff  that  he  had  assumed,  and  agreed  with  Wickoff  to  pay.  all 
the  partnership  indebtedness,  and  that  to  said  statement  plaintiff  re- 
plied :  li  All  right :  pay  as  fast  as  you  can  ;  "  that,  some  time  after  the 
dissolution,  defendant  saw  the  plaintiff,  and  stated  to  him  that,  accord- 
ins  to  the  terms  of  the  dissolution  between  himself  and  Gill.  Gill  was 
to  pay  the  sum  due  and  owing  to  the  plaintiff,  and  asked  plaintiff  if  he 
would  release  him  (defendant)  from  the  indebtedness,  to  which  plaintiff 
replied  that  he  would.     Upon  this  state  of  facts,  the  case  was  submitted 
to  the  court,  upon  a  stipulation  that  the  plaintiff  was  entitled  to  re- 
cover if  the  court  should  find  that  the  defendant  has  not  been  released 
from  the  indebtedness.     The  court  found,  as  matter  of  law,  that  there 
was  no  consideration  for  the  promise  of  the  plaintiff  to  defendant  to 
release   him  from  his  liability  on   the   partnership    indebtedness,  and 
entered  judgment  for  the  amount  claimed,  with  costs.     Defendant  sug- 
gests, rather  than  urges,  that  the  case   is  one  where  the  rule  adverted 
to  in  Webber  v.  Alderman.  102  Mich.  639,  —  namely,  that  where  the 
surety  is  induced  by  the  promise  of  the  creditor  to  forego  or  relinquish 
means  of  indemnity  to  which  he  might  otherwise  have  resorted,  by  the 
promise  of  the  creditor  to  exonerate   the  surety,  this   may    work  an 
equitable  estoppel  to  deprive  the  promisor  of  the  power  to  retract,  —  is 
applicable.     But  there  are  no  facts  found  in  this  case  which  make  this 
rule  at  all  pertinent.     There  is  no  finding  that  the  responsibility  of 
Gill  has  in  any  way  been  changed,  or  that  defendant  has  changed  his 
position  in  the  matter  because  of  any  assurances  given  b}'  plaintiff. 

The  case  must  turn  upon  the  question  of  whether  there  was  a  con- 
sideration to  support  the  promise  to  look  to  Gill  alone.  The  authorities 
are  not  agreed  upon  the  question  of  whether  the  agreement  of  one  joint 
debtor  or  co-partner  to  pay  the  debt  upon  which  the  two  are  liable  is 
a  sufficient  consideration  to  support  a  release  of  his  co-debtor.  The 
modern  English  doctrine  appears  to  be  that  such  an  undertaking  is  a 
sufficient  consideration,  on  the  ground  that  the  sole  liability  of  one  of 
two  debtors  may,  under  many  circumstances,  be  more  beneficial  and 
convenient  than  the  joint  liability  of  two,  and  that  whether  it  was  act- 
ually a  benefit  in  each  particular  case  will  not  be  inquired  into,  but  that 
the  changed  relation  will  be  held  to  be  a  sufficient  consideration.  See 
Thompson  v.  Pereival.  5  Barn.  &  Adol.  925,  and  Lyth  v.  Ault.  7  "Welsh. 
H.  &  G.  669.  This  doctrine  has  also  found  support  in  this  country,  to 
the  extent  stated  in  Collyer  v.  Moulton,  9  R.  I.  90,  in  which  it  was 
said  :  ,;If,  by  a  mutual  arrangement  between  the  plaintiff  Collyer  and 
the  two  defendants,  Moulton  had  been  released  from  his  liability  for 
the  work  alread}-  done,  and  a  new  promise  made  by  Bromley,  the  other 
defendant,  to  pay  for  it.  this  would  have  been  a  release  for  a  valuable 
consideration  ;  one  debt  would  have  been  substituted  for  the  other." 
See  also  Bantz  v.  Basnett,  12  W.  Va.  772  ;  Bowyer  v.  Knapp,  15  W. 


§  6.]  FIRM   DEBT   CONVERTED    INTO    SEPARATE    DEBT.  295 

Va.   277  ;    Waydell  v.   Luer,  3  Denio,  410.     Contra,  Early  v.  Burt, 
68  Iowa,  716  ;  Wild  ».  Dean,  3  Allen.  579. 

In  the  case  of  Johnson  v.  Einerick,  70  Mich.  215,  Mr.  Justice 
Cbamplin,  speaking  for  the  court,  said  :  "  Such  discbarge  from  liability 
is  based  upon  the  express  or  implied  assent  of  the  creditor,  upon  a 
sufficient  consideration  ;  and  a  creditor,  knowing  of  such  relation,  who 
goes  on  and  deals  with  the  other  partners  with  reference  to  the  debt, 
may  well  be  held  to  have  assented  to  the  arrangement,  and  to  have 
accepted  the  responsibility  and  promise  of  the  partner  assuming  to  pay 
such  debt.  This  consideration  need  not  be  a  money  consideration.  It 
may  be  the  obtaining  of  an  additional  security,  better  terms  of  pay- 
ment,  negotiable  securities  wbich  the  creditor  may  use  in  his  business, 
or  any  other  benefit,  or  it  may  be  the  loss  of  some  right  or  disadvan- 
tage suffered  by  the  surety  through  the  act  of  the  creditor."  In  the 
present  case  it  will  be  noted  that  the  transfer  of  the  firm  property  by 
defendant  to  Gill  was  not  induced  by  any  promise  of  plaintiff,  but  had 
occurred  before  any  promise  of  release  was  made  ;  nor  does  it  appear, 
as  before  stated,  that  the  defendant  lost  any  rights;  nor  was  any  secu- 
rity taken  or  accepted  by  the  plaintiff;  nor  does  it  appear  that  the  time 
for  the  payment  of  the  debt  was  extended. 

Plaintiff  relies  upon  Walstrom  v.  Hopkins,  103  Pa.  St.  118,  and 
Manufacturing  Co.  v.  Jennings,  29  Kan.  657.  In  the  latter  case  it 
was  claimed  that  the  plaintiff  had  due  notice  of  the  dissolution  of  the 
firm,  and  the  assumption  of  the  liabilities  by  Whitney,  and  that  the}* 
accepted  him  for  the  payment  of  the  bill  of  exchange.  The  court  said  : 
"  The  dissolution  of  the  partnership,  the  taking  of  all  the  partnership 
property,  and  the  assumption  of  all  partnership  liabilities  by  Whitney, 
in  no  manner  released  defendant.  The  alleged  promise  of  plaintiff  was 
made  after  the  dissolution,  and  not  as  an  inducement  to  or  considera- 
tion of  it.  The  acceptance  has  never  been  paid.  .  .  .  Xo  additional 
security  of  any  kind  was  furnished.  The  acceptance  was  not  destroyed, 
and  new  paper  given.  The  plaintiff  received  absolutely  no  considera- 
tion, and,  even  if  it  did  promise  that  it  would  look  to  Whitney,  such 
promise  was  entirely  without  consideration,  and  in  no  manner  dis- 
charged the  defendant.''  In  Walstrom  v.  Hopkins  it  was  held  that  a 
promise  by  a  creditor  of  a  firm  to  release  a  partner  who  had  retired 
from  the  firm,  and  to  look  to  the  continuing  partner  only,  for  the  pay- 
ment of  his  debt,  unless  founded  upon  a  legal  consideration,  is  nudum 
j"/ct"///,  and  cannot  be  enforced. 

The  weight  of  authority  favors  the  contention  that  the  promise  of 
the  continuing  partner  may  lie  a  sufficient  consideration  to  support  the 
release  of  the  outgoing  partner.  '  But,  in  the  absence  of  such  concur- 
ring or  binding  promise,  we  think  no  well-considered  case  can  be 
found,  holding  that  the  mere  agreement  between  the  partners  will  of 
itself  support  the  agreement  of  the  creditor  to  release  the  outgoing 
partner.  Such  an  agreement  docs  not  establish  a  privity  between  the 
continuing  partner  and  the  creditor,  entitling  him  to  sue  such  creditor 


296  THE   NATURE   OF   A   PARTNERSHIP.  [CHAP.  III. 

individually.  It  is  only  a  private  executory  contract,  intended  to  reg- 
ulate the  rights,  duties,  and  obligations  of  the  co-partners  between 
themselves,  consequent  upon  a  dissolution  of  the  firm.  Wild  v.  Dean, 
3  Allen,  579.  In  the  present  case  there  was  not  only  no  extension 
of  time,  no  acceptance  of  the  paper  of  the  individual  partner,  but 
the  stipulation  does  not  show  an  express  agreement  made  to  plaintiff 
by  Gill  to  pay  the  debt.  The  finding  is  that  Gill  stated  to  plaintiff  that 
he  had  agreed  with  Wickoff  to  pay  all  partnership  indebtedness,  and 
that  to  this  the  plaintiff  replied  :  "  All  right ;  pay  as  fast  as  you  can." 
It  will  be  noted  that  this  was  not  simultaneous  with  the  release  of 
Wickoff,  nor  did  it  in  terms  establish  a  privity  between  Gill  and  plain- 
tiff as  to  the  obligation  of  Gill  to  pay  the  debt  individually. 

We  think  the  judgment  should  be   affirmed.    The  other  justices 
concurred. 


§  7.    The  Nature  of  Firm  Contracts. 

HUGHES   v.   GROSS   et  al. 
166  Mass.  61:  43  N.  E.  1031.     1896. 

Holmes,  J.  This  is  an  action  of  contract  for  refusing  to  employ  the 
plaintiff  a  second  year.  The  plaintiff  had  a  verdict,  and  the  case  is 
here  on  exceptions.  The  original  contract  was  in  writing,  and  was 
made  with  two  partners,  Gross  and  Strauss,  for  one  year  from  April 
25,  1892,  with  a  conditional  right  of  renewal  on  the  side  of  the  plaintiff 
for  one  year  more.  On  November  1,  1892,  during  the  first  year  of  the 
plaintiff's  employment,  Strauss  died,  and  the  business  was  carried  on 
by  Gross.  The  first  question  raised  by  the  exceptions  is  whether 
Strauss's  death  ended  the  contract.  At  the  end  of  December  the 
plaintiff  received  a  notice  from  Gross  that  she  would  not  be  employed 
beyond  the  first  year,  stating  causes  of  dissatisfaction.  There  was  an 
answer  from  the  plaintiff,  and  a  reply  by  Gross.  Exceptions  were 
taken  to  the  admission  of  the  plaintiff's  letter  in  evidence,  and  to  the 
exclusion  of  evidence  of  other  causes  of  dissatisfaction  besides  those 
mentioned  in  the  notice. 

On  February  1,  1893,  the  defendant  Sommers  became  a  partner  in 
the  business  with  Gross,  the  new  firm  taking  the  assets  and  assuming 
the  liabilities  of  the  old  one.  Thereafter  the  plaintiff  was  paid  out 
of  the  funds  of  the  new  firm,  and,  according  to  the  plaintiffs  testimony, 
was  referred  to  Sommers  for  further  discussion  of  her  relations  with  the 
firm,  and  had  several  interviews  with  him,  in  which  he  wanted  to  ter- 
minate the  contract.  Another  exception  is  to  the  refusal  to  direct  a 
verdict  for  Sommers. 

We  are  of  opinion  that  it  could  not  be  ruled  as  matter  of  law,  that 
the  contract  of  service  was  dissolved  by  the  death  of  a  partner.     We 


8  7.]  THE   NATURE   OF   FIRM   CONTRACTS.  297 

have  no  occasion  to  criticise  the  decisions  in  some  of  our  States  and  in 
England  and  Scotland,  where  an  opposite  result  was  reached  by  a 
majority  of  the  judges  with  reference  to  different  kinds  of  business  from 
the  present,  except  to  remark  that  the  argument  put  forward  in  Scot- 
land and  elsewhere,  that  the  only  contracting  party  was  the  firm,  and 
that  the  firm  had  ceased  to  exist,  does  not  agree  with  the  common  law. 
Tasker  v.  Shepherd,  6  Hurl.  &  N.  575  ;  Hoey  v.  MacEwan,  5  Ct.  Sess. 
Cas.  (3d  series)  814,  815  ;  Griggs  v.  Swift,  82  Ga.  392  ;  Greenburg  v. 
Early,  30  Abb.  X.  C.  300,  303.  The  common  law  does  not  know  the 
firm  as  an  entity.  Ilallowell  v.  Bank,  154  Mass.  359,  363.  A  contract 
with  a  firm  is  a  contract  with  the  members  who  compose  it.  A  joint 
contract  to  employ  the  plaintiff  is  not  ended  necessarily  by  the  death 
of  one  of  the  contractors,  Martin  v.  Hunt,  1  Allen,  418,  and  there  is 
no  universal  necessity  that  death  should  have  a  greater  effect  when  the 
joint  contractors  are  partners.  Fereira  v.  Sayres,  5  Watts  &  S.  210. 
If  the  death  naturally  would  put  an  end  to  the  business,  as  it  so  fre- 
quently does,  very  possibly  it  might  end  the  employment.  We  have 
no  need  to  consider  what  would  be  the  result  if  in  fact  no  further  busi- 
ness was  done,  except  to  wind  up  the  affairs  of  the  firm,  as  was  the 
case  in  Griggs  v.  Swift,  supra.  But  this  business  went  on  without  a 
break,  and  both  parties  seemed  to  have  assumed  that  the  plaintiff's 
contract  was  not  ended  by  the  death  of  Strauss. 

But  the  foregoing  suggestions  are  not  enough  to  lay  a  foundation  for 
the  liability  of  Somraers,  even  assuming  that  there  was  evidence  war- 
ranting the  inference  that  he  was  content  to  be  bound  unless  Gross 
escaped,  and  that  he  made  an  oral  contract  on  the  terms  of  the  written 
agreement.  The  declaration  is  on  the  written  instrument,  and  the 
refusal  to  direct  a  verdict  for  Sornmers  must  be  taken  as  made  either 
with  reference  to  the  pleadings,  in  which  case  Sornmers  must  be  shown 
to  be  a  party  to  the  instrument,  or  else  on  the  evidence,  irrespective  of 
the  pleadings,  in  which  case,  unless  he  is  to  be  taken  to  have  signed 
the  writing,  the  statute  of  frauds  would  be  a  defence  under  our  decisions. 
Hill  v.  Hooper,  1  Gray,  131;  Freeman  v.  Foss,  145  Mass.  361.  It 
appears  to  us  that  this  difficulty  cannot  be  answered,  except  by  attribu- 
ting an  oversubtle  meaning  to  the  firm  signature  and  to  the  acts  of  the 
new  partners.  We  cannot  read  "Gross  and  Strauss"  as  not  only 
meaning  all  those  who  then  were  members  of  the  firm,  but  also  as  purport- 
ing to  name  in  advance  all  persons  who  might  become  members  pending 
the  contract.  It  follows  that  a  verdict  for  Sornmers  should  have  been 
directed.  But  there  seems  to  be  no  reason  why  the  Superior  Court,  if 
it  sees  fit,  should  not  allow  the  plaintiff  to  discontinue  as  against 
Sornmers,  and  to  take  a  judgment  against  the  other  defendant,  Gross. 
Ridley  v.  Knox,  138  Mass.  83,  86  ;  Fifty  Associates  v.  Howland,  5 

Cush.   214.  .  .   . 

Exceptions  sustained. 


298  THE    NATURE    OF   A   PARTNERSHIP.  [CHAP.  III. 


COMMONWEALTH   v.   JAMES. 

98  Ivy.  30:  32  S.  W.  219.     1895. 

Hazelrigg,  J.  The  only  question  presented  on  this  appeal  is  wheth- 
er, when  a  license  to  retail  liquors  has  been  issued  to  a  firm  composed 
of  two  partners,  and  one  of  the  partners  has  bought  out  the  other,  who 
thereupon  retires  from  the  business,  the  license  still  protects  the  re- 
maining partner  in  selling  at  the  place  and  during  the  time  for  which 

it  was  issued. 

Upon  what  just  ground  the  retirement  of  one  member  of  the  firm 
should  work  a  forfeiture  of  the  license  we  are  not  able  to  perceive. 
The  remaining  partner  has  parted  with  no  rights  or  given  up  no  privi- 
lege secured  to  him  by  name  in  the  license  to  the  firm.  It  is  true,  a 
license  is  said  to  be  a  personal  privilege,  depending  on  the  fitness  of 
the  licensee  to  properly  exercise  the  grant ;  but  it  can  hardly  be  sup- 
posed that  the  issuance  of  a  license  to  a  firm  or  partnership  is  made 
to  depend  on  the  personal  fitness  of  any  particular  member  of  the  firm 
over  that  of  any  other  member.  Rather  should  we  say  that  the  law 
requires  each  member  to  be  personally  fit  before  the  license  would  be 
granted.  And  the  remaining  member  is  certainly  not  rendered  less  fit 
personally  to  exercise  the  privileges  of  the  license  because  his  partner 

has  retired. 

Such  has  been  the  conclusion  of  this  and  the  Superior  Court  with 
reference  to  pedlers'  licenses,  Hill  v.  Thixton,  94  Ky.  96,  and  such 
was  the  conclusion  of  the  Superior  Court  in  this  case  on  a  former  appeal 
by  the  present  appellee.     16  Ky.  Law  Rep.  445. 

Judgment  affirmed. 


BUCHANAN  v.  MECH.  L.  &  S.  INSTITUTE  et  al. 

84  Md.  430:  35  At.  1099.     1896. 

Fowler,  J.  The  appellant  was  a  creditor  of  John  C.  Yessler,  who 
was  a  member  of  the 'firm  of  J.  C.  Dayhoff  &  Co.  Yessler  held  the 
promissory  note  of  his  firm  for  the  sum  of  $2,000,  payable  to  his  own 
order  one' vear  after  date.  In  the  early  part  of  March,  1894,  Yessler 
indorsed  this  note  before  maturity  to  the  appellant  as  collateral  security 
for  the  payment  of  an  indebtedness  of  $815,  $500  of  which  was  evidenced 
by  a  note* of  said  Yessler  for  that  amount,  and  the  remainder  consisted 
of  an  open  account  of  $315  for  cash  loaned  at  various  times.  Subse- 
quent to  the  indorsement  of  the  firm's  note  of  $2,000  by  Yessler  to  the 
appellant,  the  firm  became  insolvent,  and  receivers  were  appointed  by 
the  Circuit  Court  of  Washington  County  to  wind  up  its  business.  Dur- 
ing the  progress  of  the  distribution  of  the  firm's  assets  the  auditor  of 
that   court &filed   account  designated  "No.  1,"  in  which  the   sum   of 


§  7.]  THE   NATURE    OF   FIRM   CONTRACTS.  299 

$5,911.36  was  distributed  among  the  general  creditors,  among  whom 
the  appellant  was  numbered,  the  auditor  having  allowed  him  8719.83  on 
account  of  the  82,000  note  as  part  payment  of  the  indebtedness  of  8s  1 5. 
To  this  allowance  the  general  creditors  of  the  firm  excepted.  Their 
exceptions  were  sustained  by  the  court  below,  and  hence  this  appeal. 

The  exceptions  were  based  upon  a  variety  of  grounds,  as  appears  by 
the  record,  but  the  only  ones  relied  upon  here,  and  which  we  think 
necessary  to  consider,  are  :  First,  that,  inasmuch  as  Yessler,  the  appel- 
lant's indorser,  was  a  member  of  the  firm,  and  would  not,  therefore,  be 
entitled  himself  to  share  the  distribution  of  the  partnership  assets  until 
the  payment  in  full  of  all  the  partnership  debts,  his  indorsee  stands  in 
no  better  position  ;  second,  that  the  transfer  of  the  8^,000  note  was 
fraudulent;  and,  third,  that  said  note,  having  been  passed  to  the  appel- 
lant as  collateral  securit}-  for  the  payment  of  a  pre-existing  debt,  was 
not,  therefore,  indorsed  to  him  in  the  ordinary  course  of  business,  and 
that,  consequently,  he  was  not  a  bona  fide  holder  for  value  without 
notice  within  the  meaning  of  the  settled  rules  regulating  the  transfer  of 
commercial  paper. 

The  first  exception  appears  to  be  founded  on  the  general  rule,  about 
which,  of  course,  there  can  be  now  no  difference  of  opinion,  that  a  partner 
cannot  share  in  the  partnership  assets  until  all  the  firm  creditors  have 
been  paid  in  full.  Y\  nether  this  rule  can  properly  have  any  application 
to  this  case  depends  altogether  upon  the  legal  effect  of  the  indorsement 
by  Yessler  to  the  appellant.  If  that  indorsement  is  to  have  its  ordinary 
legal  effect  given  to  it  by  the  well-settled  rules  applicable  to  the  indorse- 
ment of  commercial  paper,  the  fact  that  the  firm  or  its  creditors  had  a 
good  defence  against  the  note  in  question  while  in  the  hands  of  Yessler 
would  not  avail  them  as  against  the  appellant ;  but  if,  on  the  other 
hand,  such  indorsement  is  to  be  considered  merely  as  an  assignment,  or 
if  the  note  itself  can  be  held  as  constituting  notice  to  the  indorsee  of 
existing  equities,  then  the  appellant  would  stand  in  the  shoes  of  Yessler, 
and  would  not  be  entitled,  as  against  the  creditors  of  the  firm,  to  share 
in  the  distribution  of  its  assets.  What,  then,  is  the  legal  significance 
of  the  indorsement?  This  question  is  answered  by  Mr.  Bates  in  his 
work  on  Partnership  (§  884),  where  he  says  that,  while  a  partner  can- 
not sue,  yet  the  note  in  his  hands  is  not  void  ;  but  the  difficulty  is  one 
attending  the  remedy,  rather  than  the  right,  and  vanishes  on  indorse- 
ment to  a  third  person  for  value.  The  transfer,  however,  he  says,  must 
be  bona  fide,  and  not  colorable  only.  In  support  of  this  view  he  cites 
many  authorities,  some  of  which  relate  to  transactions  like  the  one 
before  us,  where  the  rights  of  an  indorsee  of  a  member  of  the  firm's 
paper  are  directly  involved,  and  some  of  them  involve  only  generally  the 
rights  of  a  bona  fide  indorsee  for  value.  Thus  in  the  case  of  Smyth  v. 
Strader,  4  Now.  404,  Stevenson,  a  member  of  the  firm,  drew  two  notes 
of  the  firm  to  his  own  order,  and  indorsed  them  to  Stroson  &  Campbell 
of  New  Orleans,  who  in  turn  indorsed  them  to  the  plaintiff  in  tliatcnse. 
Although  these  notes  were  fraudulent  in  fact,  because  Stevenson  indorsed 


300  THE   NATUKE    OF   A   PARTNERSHIP.  [CHAP.  III. 

them  to  the  first  indorsee  to  pay  an  individual  claim,  yet  it  was  held  by 
the  Supreme  Court  of  the  United  States  (McLean,  J.,  delivering  the 
opinion)  that,  while  Stevenson  could  not  recover  because  he  was  a  part- 
ner, yet  his  bona  fide  indorsee  could.  See  also,  to  the  same  effect, 
Smith  v.  Lusher,  5  Cow.  688  ;  Nevins  v.  Townsend,  6  Conn.  7  ;  Moore 
v.  Denslow,  14  Conn.  237  ;  Davis  v.  Briggs,  39  Me.  305  ;  Thayer  v. 
Buffum,  11  Mete.  398  ;  Waterman  v.  Hunt,  2  R.  I.  302. 

But,  independent  of  authority,  we  think  this  must  be  so  for  obvious 
reasons.  Nothing  is  more  common  in  the  ordinary  course  of  business 
than  the  drawing  of  paper  to  the  order  of  and  in  favor  of  one  of  the 
firm,  either  for  reasons  of  convenience  or  because  the  discounting  bank 
may  sometimes,  either  in  order  to  comply  with  some  rule  of  its  own,  or 
for  some  other  reasons,  prefer  to  have  the  paper  payable  to  and  in- 
dorsed by  one  member  of  the  firm,  rather  than  by  the  firm  itself.  And 
when  such  paper  is  indorsed  bona  fide  and  for  value  by  a  partner,  we 
are  unable  to  see  why  such  transfer  is  not  equally  as  valid  as  the 
transfer  of  any  other  well-known  class  of  commercial  paper  would 
be  under  the  same  circumstances.  In  the  case  of  Smith  v.  Lusher, 
supra,  the  custom  of  making  firm  paper  in  favor  of  a  partner  is 
referred  to  as  one  generally  prevailing.  It  was  contended  in  argu- 
ment that  to  give  the  partner's  indorsement  its  legal  effect  would  put 
it  in  the  power  of  a  creditor  of  an  individual  insolvent  partner  holding 
an  invalid  claim  of  such  partner  to  secure  payment  out  of  the  partner- 
ship assets  pari  passu  with  the  general  creditors  of  the  firm,  although 
such  individual  partner  himself  would  have  no  standing  for  that  purpose 
in  court.  But  in  answer  to  this  suggestion  it  is  sufficient  to  say  that  it 
necessarily  follows,  if  the  appellant  is  a  bona  fide  holder  for  value,  his 
title  and  right  to  recover  are  not  dependent  upon  the  validity  of  the 
title  of  his  indorser.  It  often  happens  that  an  indorsee  of  commercial 
negotiable  paper  stands  in  a  better  position  than  his  indorser,  and  hence 
the  well-settled  rule  which  prevails  everywhere,  "  that  commercial 
paper  having  the  quality  of  negotiability  is  privileged,  and  such  of  it  as 
belongs  to  the  class  of  bills  and  notes  may  be  transferred  in  such  manner 
as  to  give  the  indorsee  a  better  right  than  the  party  making  the  trans- 
fer." (The  second  and  third  exceptions  were  then  considered,  and  the 
conclusion  reached,  that  the  appellant  was  a  bona  fide  holder  of  the  note, 
following  Maitland  v.  Bank,  40  Md.  540,  and  Bank  v.  Hooper,  47  Md. 
88.)  It  therefore  follows  that  he  is  entitled  to  share  in  the  distribution 
of  partnership  assets  equally  with  the  other  general  creditors  to  an 
amount  not  greater  than  the  debt,  with  interest,  which  was  secured  by 
the  $2,000  note,  Daniel,  Neg.  Inst.  §  832a,  and  authorities  there 
cited  ;  also  Williams  v.  Huntington,  68  Md.  605,  the  note  held  as  col- 
lateral being  taken  as  the  basis  of  calculation  of  the  amount  of  the 
dividend  to  be  allowed  the  appellant. 

Order  reversed,  and  cause  remanded  for  further  proceedings,  in  ac- 
cordance with  this  opinion. 


§  7.1  THE  NATURE  OF  FIRM  CONTRACTS.  301 

Mclaughlin  v.  mulloy. 

47  Pac.  (Utah)  1031.     1S97. 

This  is  an  action  brought  by  the  plaintiff,  representing  the  Park  City 
Bank,  as  receiver,  against  the  defendant,  who  is  the  assignee  of  the  firm 
of  Kidder  &  Bro.,  for  money  had  and  received  to  the  plaintiff's  use,  as 
such  receiver.  On  and  prior  to  July  21,  1892,  George  C.  Kidder  and 
Russell  W.  Kidder  were  co-partners,  engaged  in  the  lumber  business  at 
Park  City,  Utah,  under  the  firm  name  of  Kidder  &  Bro.  This  firm 
continued  doing  business  until  June  13,  1893,  when  it  made  an  assign- 
ment to  the  defendant  for  the  benefit  of  its  creditors.  On  and  prior  to 
July  21,  1892,  and  thereafter  until  such  assignment,  Kidder  &  Bro. 
were  co-partners  with  one  H.  P.  Mason,  and  engaged  in  the  business 
of  manufacturing  lumber  in  the  State  of  California,  under  the  firm  name 
of  Mason,  Kidder,  &  Co.,  and  a  large  amount  of  their  lumber  was 
shipped  to  the  firm  of  Kidder  &  Bro.  In  the  new  co-partnership, 
Kidder  &  Bro.  constituted  one  partner,  and  Mason  was  the  other,  the 
two  partners  having  equal  interests  therein.  The  co-partnership  so 
formed,  in  the  pursuit  of  its  business,  became  indebted  in  California 
and  elsewhere;  and  about  July  21,  1892,  for  the  purpose  of  paying 
these  debts,  it  negotiated  a  loan  of  $8,000,  from  the  Park  City  Bank,  it 
being  understood  and  agreed  that  the  note  to  be  given  for  the  loan 
should  be  signed  by  the  individual  members  of  the  firm  of  Mason, 
Kidder,  &  Co.,  as  sureties  for  the  firm.  On  July  21,  1892,  the  note 
was  executed  for  88,000,  and  George  C.  Kidder,  without  the  knowledge 
of  Russell  W.  Kidder,  in  good  faith,  believing  it  to  be  for  the  best  in- 
terests of  the  firm  of  Kidder  &  Bro.,  and  that  he  had  the  legal  right  so 
to  do,  signed  the  name  of  Kidder  &  Bro.  thereto,  as  surety  for  the  firm 
of  Mason,  Kidder,  &  Co.,  and  Mason  also  executed  the  note  as  such 
surety.  Five  thousand  dollars  of  the  money  obtained  on  this  paper  was 
paid  on  the  debts  of  Mason,  Kidder,  &  Co.,  by  its  manager,  George  C. 
Kidder ;  and  the  remaining  three  thousand  dollars  was  credited  to  the 
account  of  the  firm  of  Mason,  Kidder,  &  Co.  with  the  Park  City  Bank, 
and  was  drawn  out  from  time  to  time,  on  the  checks  of  that  firm,  in 
payment  of  its  debts.  On  January  21,  1893,  the  note  was  renewed  in 
precisely  the  same  manner  in  which  it  was  originally  given.  At  the 
time  of  the  assignment  of  Kidder  &  Bro.,  there  was  due  on  the  note 
$8,043.33,  no  part  of  which  has  been  paid.  The  defendant,  as  assigneo 
of  the  firm  of  Kidder  &  Bro.,  has  received  sufficient  assets  to  pay  20 
per  centum  upon  the  liabilities,  but  refuses  to  pay  anything  on  the 
plaintiff's  claim.     Judgment  for  plaintiff.      Defendant  appealed. 

S.  M.  McDowall,  for  appellant. 

Brown,  Henderson,  &  King,  for  respondent. 

Bartcii,  J.  .  .  .  The  principal  contention  of  the  appellant  appears 
to  be  that  the  firm  of  Kidder  &  Bro.  was  not  bound  by  the  action  of 
George  C.  Kidder  in  signing  the  firm  name  on  the  note  as  surety,  with- 


302  THE    NATUKE   OF    A   PARTNERSHIP.  [CHAP.  III. 

out  the  knowledge  of  the  other  member  of  the  firm,  because,  as  is 
insisted,  such  action  was  not  within  the  scope  of  the  co-partnership. 
No  doubt,  one  firm  ma}-  become  a  partner  in  another  firm,  and  in  that 
event  such  partner  will  be  treated  as  a  constituent  member  of  the  new 
firm,  and  division  of  profits  made  to  the  constitutent  co-partnership, 
and  not  to  its  members,  as  individuals,  unless  the   intention  of  the 
parties   be   otherwise.      So   liabilities    may  attach   to   the  constituent 
members   of  the  new  firm.     Bates,  Partn.   §   150  ;  In  re  Hamilton,  1 
Fed.  800  ;  In  re  Gilbert,  94  Wis.  108  ;  Bullock  v.  Hubbard,  23  Cal. 
496.     The  firm  of  Kidder  &  Bro.  having  become  a  constituent  member 
of  the  firm  of  Mason,  Kidder,  &  Co.,  which  is  conceded,  it  became  a 
part  of  its  business,  and  it  was  to  its  interest,  as  such  co-partnership,  to 
sustain  and  promote  the  business  of  Mason,  Kidder,  &  Co.     Therefore 
anything  which  the  firm  of  Kidder  &  Bro.  did  to  that  end  was  within 
the  scope  of  its  business,  and  could  be  done  in  the  usual  manner  of 
transacting  partnership  business.     As  a  co-partnership,  Kidder  &  Bro. 
had  embarked  in  the  business  of  Mason,  Kidder,  &  Co.,  both  firms  being 
in  the  same  line  of  business.    The  new  firm  manufactured  and  furnished 
lumber,  in  which  Kidder  &  Bro.,  as  a  firm,  were  dealing.     The  purpose 
was  to  make  profits  for  Mason,  Kidder,  &  Co.,  which  would  enure  to  the 
use  and  benefit  of  Kidder  &  Bro.    In  transacting  the  business  of  Mason, 
Kidder,   &  Co.,  debts  were  legitimately  created;  and,  to  pay  these 
obligations,    the   loan    was   obtained   by  the  firm  through  George   C. 
Kidder,  from  the  Park  City  Bank,  with  the  agreement  that  Kidder  & 
Bro.  and  H.  P.  Mason  should  sign  the  note  to  be  given  for  the  loan,  as 
sureties  for  Mason,  Kidder,  &  Co.  Under  all  these  circumstances,  we  are 
of  the  opinion  that  George  C.  Kidder  had  the  lawful  right,  he  being  a 
member  of  the  firm  of  Kidder  &  Bro. ,  to  sign  the  firm  name  on  the  note 
as  surety,  and  that  the  firm  of  Kidder  &  Bro.  was  bound  by  such  sig- 
nature.    Turnpike  Co.  v.  Gulick,  16  N.  J.  Law,  161,  169;  Gulick  v. 
Gulick,  14  N.  J.  Law,  578. 

It  is  also  insisted  that,  regardless  of  whether  the  firm  of  Kidder  & 
Bro.  is  liable  on  the  note  in  question,  the  respondent  has  no  cause  of 
action  against  the  assignee,  until  it  shall  appear  that  he  has  funds  in  his 
possession,  belonging  to  the  insolvent  firm,  after  all  its  firm  debts  have 
been  paid.  The  firm  of  Kidder  &  Bro.  being  bound  by  the  execution  of 
the  note,  the  amount  thereof  remaining  due  and  unpaid  constitutes  a 
valid  claim  against  that  firm,  and  must  be  regarded  and  treated  by  the 
assignee  the  same  as  any  other  firm  debt,  in  the  payment  of  percentage 
5n  the  firm's  liabilities.  The  cases  on  which  the  appellant  relies  for  a 
reversal  do  not  appear  to  be  applicable  to  the  facts  of  this  case.  We 
and  no  reversible  error  in  the  record. 

The  judgment  is  affirmed, 

Zane,  C.  J.,  and  Miner,  J.,  concur. 


§  8.]  INJURIES    TO   THE   FIRM.  303 


§  8.     Injuries  to  the  Firm. 

FORSTER   et   al.    i:    LAWSON. 

3  Bing.  452.     1820. 

Case  for  libel.  Plaintiffs  were  bankers  in  partnership,  and  the  libel 
complained  of  was  that  they  had  suspended  their  payments.  General 
demurrer  and  joinder. 

Taddy,  Serjt.,  in  support  of  the  demurrer. 

Best,  C.  J.  An  objection  has  been  made  to  the  declaration,  that  the 
action  has  been  brought  by  three  persons  jointly,  and  that  they  could 
not  properly  join  in  such  an  action. 

The  general  rule  of  law  is,  as  laid  clown  in  Smith  v.  Cooker,  Cro. 
Car.  513,  that  where  several  persons  are  charged  with  being  jointly 
concerned  in  a  murder,  each  of  them  must  bring  his  separate  action 
for  it,  and  the  reason  is,  that  they  have  no  joint  interest  to  be  affected 
by  the  slander.  When,  however,  two  persons  have  a  joint  interest 
affected  by  the  slander,  they  may  sue  jointly,  and  the  case  of  Cooke  v. 
Batchelor,  3  B.  &  P.  150,  is  not  the  first  case  which  has  determined 
this  point.  ...  It  has  been  said  that,  notwithstanding  the  judg- 
ment against  the  defendant  in  this  action,  if  either  of  the  plaintiffs 
has  sustained  any  separate  damage,  he  may  still  maintain  a  sepa- 
rate action.  I  cannot  see  how  there  can  be  any  separate  damage. 
The  business  injured  is  the  joint  business,  and  the  libel  onby  affects 
the  plaintiffs  through  their  business.  If,  however,  a  co-partnership 
be  libelled,  and  the  libel  contains  something  which  particularly  affect 
the  character  of  one  of  that  firm,  I  think  a  joint  action  may  be 
maintained  against  the  libeller,  who  would  have  less  reason  to  com- 
plain of  such  proceedings  than  he  would  have  if  each  partner  .brought 
a  separate  action  for  the  injury  clone  to  the  firm. 

Another  objection  is  that  the  plaintiffs  have  not  stated  the  proportion 
of  interest  which  each  respectively  had  in  their  joint  business.  It  is 
not  necessary  for  them  to  do  so :  with  their  several  proportions  the 
defendant  has  nothing  to  do.  An}'  compensation  the}-  may  recover 
will  belong  to  them  generally,  and  it  is  nothing  to  the  defendant  how 
it  may  be  divided  among  them. 

It  has  also  been  urged  that  the  words  contained  in  the  paragraph  are 
not  actionable.  I  have  no  hesitation  in  deciding  that,  to  say  of  any 
bankers  that  the}7  have  suspended  payment  is  actionable.  For  what 
can  be  the  meaning  of  such  a  statement,  except  that  the}'  are  no  longer 
solvent?  Saying  that  a  banker  has  suspended  payment  is  saying  that 
he  cannot  pay  his  debts.  A  temporary  inability  to  pay  debts  is  insol- 
vency. The  charge  of  suspending  payment  is  a  charge  of  insolvency. 
Such  a  statement  will  instantly  bring  all  the  creditors  of  a  banking- 
house  upon  it,  and  completely  stop  their  business  by  preventing  any 


304                               THE    NATURE    OF   A   PARTNERSHIP.  [CHAP.  III. 

one  from  taking  their  bills.  ...  It  appears  to  me  that  the  declara- 
tion is  unobjectionable,  and  that  the  plaintiffs  are  entitled  to 
judgment.1 


SINDELARE  v.  WALKER. 
137  111.  43.     1891. 

Wilkin,  J.  .  .  .  The  only  question  involved  in  the  suit  is,  could 
plaintiff'  maintain  this  action  at  law  on  the  allegations  of  his  declara- 
tion. In  substance,  these  allegations  are,  that  the  plaintiff  and  said 
Hubka  were  partners  in  the  dry  goods  business  in  the  city  of  Chicago, 
owning  a  stock  of  goods  and  certain  store  fixtures,  on  which  they  had 
previously  executed  a  chattel  mortgage  to  defendant  in  error;  that 
long  before  the  maturity  thereof,  and  without  any  authority  of  law 
whatever,  defendant  in  error,  by  collusion  with  said  Hubka,  wrongfully 
foreclosed  said  mortgage,  and  took  possession  of  not  only  the  goods 
and  chattels  described  therein,  but  also  of  others,  of  the  value  of  $5,000, 
belonging  to  said  firm,  which  he  afterwards  pretended  to  sell  to  said 
Hubka  ;  that,  by  reason  of  said  wrongful  seizure  and  transfer,  plaintiff 
was  deprived  of  said  goods  and  the  profits  and  good  will  of  said  busi- 
ness ;  that  said  wrongs  were  committed  in  pursuance  of  a  confederation 
and  collusion  between  said  defendant  in  error  and  said  Hubka,  to 
injure  and  defraud  the  plaintiff.  There  is  no  averment  that  the  co- 
partnership between  plaintiff  and  Hubka  has  been  dissolved,  or  any 
settlement  whatever  had  of  their  partnership  affairs.  The  declaration, 
therefore,  not  only  fails  to  show  any  individual  title  or  ownership  in 
plaintiff  to  said  property,  partnership  business,  or  the  profits  or  good 
will  thereof,  which  he  says  he  lost,  but  affirmatively  discloses  a  state 
of  facts  from  which  it  appears  that  he  had  only  a  community  of  interest 
therein  with  his  partner,  who  consented  to  said  transfer,  and  all  that 
was  done  by  defendant  in  error. 

A  partner's  right  to  partnership  property  is  an  ownership  of  all  the 
assets  of  the  firm,  subject  to  the  ownership  of  every  other  co-partner, 
all  of  the  partners  holding  all  of  the  firm  assets  subject  to  the  payment 
of  the  partnership  debts  and  liabilities.  Pars,  on  Partn.  350.  It  is 
clear,  therefore,  that  the  individual  interest  of  one  partner  in  the  firm 
property  and  business  can  only  be  ascertained  by  a  settlement  of  the 
partnership.  Bopp  v.  Fox,  63  111.  540  ;  Chandler  v.  Lincoln,  52  Id. 
77  ;  Menagh  v.  Whitwell,  52  N.  Y.  146.  This  rule  applies  to  the  inter- 
est of  a  partner  in  the  profits  or  good  will  of  the  partnership  business 
as  well  as  to  the  tangible  assets  of  the  firm.  Until  plaintiffs  actual 
interest  in  the  partnership  has  been  determined,  there  can  be  no  ascer- 

1  The  statement  has  been  abridged,  and  the  concurring  opinions  of  Park, 
Bukrougii,  and  Gaselee,  JJ.,  have  been  omitted. 


R  31  INJURIES   TO   THE   FIRM.  305 

tainment  of  his  damages.     Buchniaster  v.  Gowen,  SI  111.  285  ;  Sweet 
v.  Morrison,  103  N.  Y.  235. 

We  are  clearly  of  the  opinion  that,  on  the  facts  stated  in  his  declara- 
tion, plaintiff  has  no  standing  in  a  court  of  law.  We  find  nothing  in 
the  authorities  cited  by  his  counsel  in  conflict  with  this  conclusion. 

Judgment  affirmed. 


80 


CHAPTEE  IV. 

powers  of  partners. 

§  1.  Power  to  sell  Firm  Property. 

LAMBERT'S   CASE. 
Godbolt,  244.     Supra,  p.  210. 


TAPLEY  v.   BUTTERFIELD. 
1  Met.  515.     Supra,  p.  211. 


MABBETT   v.    WHITE. 
12  N.  Y.  442.     Supra,  p.  212. 


MONROE  v.   HAMILTON  et  al. 
60  Ala.  226.     1877. 

Bill  for  a  settlement  of  partnership  accounts  between  Monroe  and 
Hamilton,  and  to  hold  the  other  defendants  accountable  for  part- 
nership property,  which  they  had  received  from  Hamilton.  The 
partnership  was  formed  for  the  cultivation  of  certain  lands  and  the 
production  and  sale  of  a  crop  of  cotton  and  corn. 

The  chancellor  held  that  the  complainant  could  not  repudiate  the 
payments  nor  the  transfers  of  cotton  made  by  Hamilton,  and  that 
complainant  had  received  more  of  the  cotton  than  he  was  entitled  to 
under  the  partnership  agreement.     The  complainant  appealed. 

R.  Crawford,  for  appellant. 

E.  Morgan,  and  W.  Coleman,  contra. 

Brickell,  C.  J.  The  mortgage  is  a  conveyance  to  Monroe  of 
Hamilton's  interest  in  and  to  the  joint  partnership  crop,  subject  to 
the  condition  that  it  is  to  become  void,  if  at  maturity  he  should  pay 
the  mortgage  debts.  These  are  his  individual,  not  partnership  debts; 
and  as  the  crops  would  be  gathered,  and  ready  for  market,  before  the 


§!■] 


POWER   TO   SELL   FIRM    PROPERTY.  307 


maturity  of  the  debts,  it  is  stipulated,  that  when  gathered,  or  in  a 
reasonable  time  thereafter,  Monroe  should  take  possession,  and  dis- 
pose of  them,  for  the  mutual  benefit  of  the  parties,  and  should  settle 
the  partnership  dealings,  and  divide  the  net  profits  into  two  equal 
shares  —one  of  which  should  belong  to  him  absolutely,  and  the  other 
he  should  hold  in  trust  for  Hamilton,  first  paying  therefrom  the  mort- 
gage debt,  and  the  residue  paying  over  to  Hamilton.  The  material 
question  is,  how  far  the  mortgage  operates  a  limitation  of  the  authority 
of  Hamilton,  as  partner,  to  dispose  of  the  partnership  crops  to  per- 
sons not  having  actual  notice  of  the  limitation;  and  whether  the 
registration  of  the  mortgage  operates  as  constructive  notice  of  such 

limitation.  .  . 

1     An  assignment  by  a  partner,  of  all  his  interest  in  the  partner- 
ship property,  to  a  stranger,  operates  a  dissolution  of  the  partnership, 
of  necessity;  "It  gives  rise  to  a  state  of  things  altogether  incom- 
patible with  the  prosecution  of  a  partnership  concern."     The  other 
partners  may  not  have  confidence  in  the  assignee,  and  may  well  say 
that  they  have  not  with   him  entered  into  a  common  adventure,  nor 
consented  that   he  should  exercise  the   authority  of  a  partner;  nor 
mav  the  assignee  choose  to  risk  his  credit  and  property  in  an  adven- 
ture with  them.    Marquand  v.  N.  Y.  Man.,  Co.  17  Johns.  525;  Pars,  on 
Partn   400.     An  assignment  by  one  partner  to  another,  of  his  interest 
in  the  partnership  property,  is  not,  ipso  facto,  a  dissolution  of  the 
partnership.     Whether  it  shall  so  operate  depends  on  its  terms,  and 
the  intention  of  the  parties,  as  from  these  it  may  be  collected.     If 
the  withdrawal  of  the  assignor  from  the  partnership  is  contemplated, 
—  if  there  is  a  termination  of  his  authority  and  duty  as  partner,  and 
as  between  him  and  the  assignee,  exemption  from  liability  for  the 
future  transactions  which  may  be  had  by  the  assignee,  in  the  prose- 
cution of  the  original  undertaking,  it  is  as  to  them  a  dissolution. 
Pars,  on  Partn.  400.    But,  when  the  assignment  is  intended  as  a  mere 
security  for  a  debt,  and  is  to  operate  only  on  the  share  of  the  net 
profits  of  the  assignor,  on  a  settlement  of  the  partnership  transac- 
tion, at  the  expiration  of  the  partnership,  and  he  remains  bound  to 
all  duties  as  partner,  —  bound  to  contribute  time,  labor,  and  skill  to 
the  prosecution  of  the  common  undertaking,  —  it  will  not  operate  a 
dissolution,  not  even  as  between  the  partners  themselves.     Taft  v. 
Buffum,  14  Pick.  322;  Buford  v.  Neely,  2  Dev.  Eq.  481. 

■>.  Applying  this  principle  to  the  mortgage,  it  did  not  operate  a 
dissolution  of  the  partnership.  Hamilton  remained  bound  to  all 
duties  as  partner,  nor  was  he  relieved  from  liability  for  the  future 
transactions,  within  the  scope  of  the  partnership  business.  Such 
transactions  were  a  necessity  to  the  business  in  which  the  partnership 
was  engaged,  and  are  contemplated  by  the  articles  of  partnership. 
Ai  the  "execution  of  the  mortgage,  but  a  small  part,  if  any,  of  the 
partnership  crops  could  have  been  planted.  In  the  course  of  culti- 
vation, and  of  gathering,  expenses  would  be  necessarily  incurred  for 


308  POWERS    OF   PARTNERS.  [CHAP.  IV. 

which  no  other  provision  is  made  by  the  articles  of  partnership,  than 
that  they  are  to  be  borne  equally  by  the  partners.  There  is  no  limita- 
tion in  the  mortgage  of  the  authority  of  Hamilton  to  make  contracts 
for  such  expenses,  nor  of  his  authority  to  pay  them  when  contracted. 
In  this  respect,  his  authority  is  precisely  that  which  is  derived  by 
implication  of  law  from  the  nature  of  the  partnership  business;  and 
there  is  no  indication  in  the  mortgage  of  an  intention  to  withdraw, 
or  to  restrain  it.  The  whole  effect  of  the  mortgage  is  to  take  away 
his  power  as  partner  to  dispose  of  crops,  conferring  on  Monroe  the 
right  to  the  exclusive  possession  of  them,  and  the  exclusive  power  to 
dispose  of  them  when  gathered,  and  to  create  a  lien  on  Hamilton's 
share  of  the  net  profits  derived  from  a  sale  of  the  crops,  as  a  security 
for  the  payment  of  the  mortgage  debts.  The  mortgage  has  a  twofold 
operation, —  a  limitation  of  the  authority  of  Hamilton  as  partner,  and 
a  charge  on  his  share  of  the  net  profits.  The  undivided  interest  of 
Hamilton  in  the  partnership  crop  when  gathered,  or  in  any  other  part 
of  the  partnership  property,  would  have  been  subject  to  levy  and  sale 
under  execution  against  him,  in  favor  of  an  individual  creditor;  and 
a  purchaser  at  such  sale  would  have  been  entitled  to  his  share  thereof, 
as  ascertained  on  a  settlement  of  the  partnership  accounts.  Winston 
v.  Ewing,  1  Ala.  129;  Moore  v.  Sample,  3  Ala.  319;  Andrews  v. 
Keith,  34  Ala.  722. 

3.  The  mortgage,  conveying  an  interest  subject  to  execution,  must 
have  been  registered  in  compliance  with  the  statute,  to  protect  the 
mortgagee  against  the  rights  of  judgment  creditors,  or  of  subsequent 
purchasers  from  the  mortgagor.  Code  of  1876,  §  2162.  The  regis- 
tration, when  properly  made,  operates  as  constructive  notice  to  all 
the  world,  of  the  mortgage  —  of  the  conveyance  of  Hamilton's  share 
of  the  crops  —  of  the  property  which  would  be  subjected  to  execu- 
tion against  him.  No  lieu  in  favor  of  execution  creditors  can  sub- 
sequently  attach,  and  override  and  defeat  it;  and  every  subsequent 
purchaser  from  him  of  such  share  would  be  charged  with  notice  of  it. 
This  principle  of  constructive  notice  from  registration  is  confined  to 
instruments  which  the  statute  authorizes  to  be  registered.  It  cannot 
be  extended  to  any  and  every  instrument  which  parties  may  think 
proper  to  register.  There  must  be  a  statute  authorizing  the  regis- 
tration, or  mere  registration  will  not  operate  notice.  Mitchell  v. 
Mitchell,  3  S.  &  P.  81;  Dufphey  v.  Freenay,  5  S.  &  P.  215;  Baker 
v.  Washington,  Id.  142;  Tatum  v.  Young,  1  Port.  298.  Nor  will 
registration  operate  as  constructive  notice  of  any  and  every  provision 
which  may  be  introduced  into  an  instrument,  of  which  it  is  required. 
A  conveyance  of  personal  property  may  include  a  transfer  of  choses 
in  action,  and,  while  operating  as  constructive  notice  of  the  transfer 
of  the  particular  personal  property  described,  it  would  not  operate  as 
a  notice  of  the  transfer  of  the  choses  in  action.  McCain  v.  Wood, 
4  Ala.  258;  Stewarts.  Kirkland,  19  Ala.  162.  The  reason  is  obvi- 
ous ;  the  law  does  not  authorize  the  registration  of  transfers  of  choses 


§  1.]  POWER    TO    SELL   FIRM    PBOPEBTY.  309 

in  action,  and,  therefore,  does  not  cast  on  those  dealing  with  him 
■who  has  the  possession,  and  the  apparent  legal  title,  the  duty  to 
ascertain  whether  there  has  been  an  assignment  of  them.  We  have 
no  statute,  except  as  to  limited  partnerships,  which  authorizes  the 
registration  of  articles  of  partnership,  or  of  limitations  or  restraints 
which,  by  agreement,  may  be  placed  on  the  power  and  authority  of  a 
partner.  While,  so  far  as  the  mortgage  is  a  conveyance  of  Hamilton's 
undivided  share  of  the  joint  crops,  its  registration  is  constructive 
notice  thereof,  so  far  as  it  is  a  restraint  of  limitation  of  his  authority 
as  partner,  the  registration  is  not  constructive  notice. 

Limitations  or  restraints  which  partners,  by  agreements  between 
themselves,  may  impose  on  the  authority  or  power  of  the  several 
partners,  varying  or  qualifying  that  wmich  the  law  implies  from  the 
relation,  and  the  nature  and  character  of  the  partnership  business, 
have  no  effect  upon  third  persons,  dealing  with  the  partners  in  good 
faith,  and  in  ignorance  of  them,  though  they  may  be  valid  and  bind- 
ing as  between  themselves.  Parsons  on  Partn.  93 ;  Collyer  on  Partn. 
§  386. 

The  bill  seems  to  have  been  filed  rather  in  a  double  aspect, —  the 
one  to  assert  the  right  of  the  complainant  as  mortgagee,  to  pursue 
the  cotton  Hamilton  had  disposed  of,  though  such  disposition  was 
within  the  scope  of  his  power  as  partner,  if  it  had  not  been  limited 
and  restrained  by  the  provisions  of  the  mortgage,  or  rather  the  neces- 
sary implication  from  these  provisions.  The  averments  of  notice  of 
the  limitation  and  restraint  on  his  power,  to  those  dealing  with  him, 
are  referable  to  the  averment  of  the  registration  of  the  mortgage, 
which  it  is  evident  the  pleader  supposed  operated  constructive  notice 
thereof.  The  answers  den}'  ull  notice,  and  of  it  there  is  no  evidence. 
In  this  respect,  therefore,  the  bill  must  fail. 

The  other  aspect  is,  the  right  of  the  complainant  to  pursue  partner- 
ship assets  his  co-partner  had  misappropriated.  In  this  aspect,  the 
bill  fails,  for  want  of  proof  of  such  misappropriation,  prejudicial  to 
the  complainant.  Whatever  of  misappropriation  may  be  shown,  was 
in  payment  of  debts  for  which  the  complainant  was  bound  individ- 
ually. The  partnership  debts  having  been  fully  paid,  from  it  no 
injury  resulted  to  him. 

The  decree  of  the  chancellor  was  certainly  as  favorable  to  the 
appellant  as  the  pleadings  or  facts  would  justify,  and  it  must  be 
affirmed. 


COLUMBIA   NAT.    BANK   OF   LINCOLN   v.  RICE  et  al. 

48  Neb.  428:  67  N.  W.  165.     1896. 

Irvine,  C.     The  Columbia  National  Bank  brought  this  suit  against 
II.  M.  Rice  &  Co.,  a  co-partnership  composed  of  II.  M.  Rice  and  the 


310  POWERS    OF    PARTNERS.  [CHAP.  IV. 

State  Journal  Company,  a  corporation,  to  recover  on  a  promissory 
note  for  $150,  and  upon  an  overdraft  of  $67.42.  The  defendants 
denied  the  allegations  of  the  petition,  and  pleaded  a  counterclaim  of 
$500,  as  a  balauce  due  on  account  of  the  sale  and  delivery  by  Rice 
&  Co.  to  the  bank  of  a  safe.  The  reply  admitted  the  counterclaim, 
but  alleged  payment. 

A  jury  was  waived,  and  the  case  tried  to  the  court,  which  found  for 
the  plaintiff  on  its  petition,  and  for  the  defendants  on  their  counter- 
claim, and  rendered  judgment  in  favor  of  the  defendants  for  the 
excess  of  the  counterclaim  over  the  amount  claimed  in  the  petition. 
There  was  no  dispute  on  the  trial  as  to  the  validity  of  plaintiff's 
claim.  The  whole  controversy  concerns  the  counterclaim.  The  evi- 
dence discloses  that,  at  the  time  the  Columbia  National  Bank  was 
organized,  Rice,  acting  for  Rice  &  Co.,  sold  the  safe  in  question  to 
the  bank  for  $1,200.  Rice  individually  subscribed  for  $500  of  stock 
in  the  bank.  The  bank  paid  Rice  &  Co.  $700  in  cash,  or  its  equiva- 
lent, and  credited  the  remaining  $500  due  upon  the  safe  to  Rice,  in 
payment  of  his  subscription  to  stock  in  the  bank.  It  is  by  this  credit 
that  the  bank  claims  to  have  discharged  the  balance  due  upon  the 
safe. 

The  plaintiff  invokes  the  rule  that  a  partnership  is  bound  by  the 
acts  of  one  of  its  partners  within  the  scope  of  the  partnership  busi- 
ness. But  counsel,  in  argument,  overlook  the  qualification  indicated 
by  the  latter  part  of  the  rule,  which  is  a  feature  of  all  the  cases  they 
cite  in  support  of  their  position.  It  was  not  within  the  scope,  or 
the  apparent  scope,  of  the  business  of  the  partnership,  to  dispose  of 
its  property  for  the  individual  benefit  of  Rice.  (After  stating  the 
decisions  in  Norton  v.  Thacher,  8  Neb.  186;  Howell  v.  Machine  Co. 
12  Neb.  177;  Levi  v.  Latham,  15  Neb.  509;  and  Tolerton  v.  McLain, 
35  Neb.  725,  the  learned  judge  continued:)  The  case  is  so  plain  on 
principle  that  we  do  not  deem  it  necessary  to  cite  any  foreign  cases. 
Those  from  our  own  State  already  cited  are  sufficient  to  establish  the 
principle.  The  evidence  in  this  case  was  somewhat  conflicting,  but 
certainly  sufficient  to  sustain  the  finding  that  Rice  either  disposed 
of  the  safe  in  settlement  of  his  private  subscription  to  stock  in  the 
bank,  or  else  that,  having  sold  the  safe  to  the  bank,  he  undertook  to 
have  the  debt  owing  therefor  applied  in  satisfaction  of  his  subscrip- 
tion to  the  stock ;  that  this  was  done  without  the  consent  or  knowl- 
edge of  the  other  partner;  and  that  the  bank  was  aware  that  the 
subscription  to  the  stock  was  that  of  Rice  individually,  and  not  of 
the  firm.  Under  these  circumstances,  it  was  charged  with  notice  of 
his  want  of  authority. 

There  was  evidence  tending  to  show  that  Rice  had  represented  to 
the  bank  that  he  had  authority  to  so  use  the  firm  property.  But  the 
authority  of  a  partner  to  act  on  behalf  of  the  firm  is  based  upon  the 
general  principles  regulating  the  authority  of  agents;  and  it  is  a 
primary  principle  that  the  authority  of  an  agent  cannot  be  proved  by 


§  2.]  POWER   TO    INCUR   A   FIRM    OBLIGATION.  311 


the  declarations  of  the  agent  himself.  So  that  Rice's  declarations 
on  this  behalf  did  not  bind  the  firm.  The  bank  dealt  with  him  at 
its  peril.  Stoll  v.  Sheldon,  13  Neb.  207;  Nostrum  v.  Halliday,  30 
Neb.  828;  Burke  v.  Five.  44  Xeb.  223;  Richardson  &  Boynton  Co. 
v.  School  Dist.  Xo.  11  of  Nuckolls  Co.,  45  Xeb.  777.  Nor  does  the 
rule  that,  where  one  of  two  innocent  parties  must  suiter,  the  one  who 
has  placed  the  wrongdoer  in  position  to  work  the  injury  must  sustain 
the  loss,  apply  to  this  ease.  That  rule  applies  where  the  act  was 
within  the  apparent  authority  of  the  agent.  Bank  v.  Thomas,  46  Xeb. 
861.     Here  the  act  was  not  within  the  agent's  apparent  authority. 

It  is  contended  that  the  evidence  shows  that  the  State  Journal  Com- 
pany ratified  the  act  of  Rice,  by  making  a  claim  to  the  stock.  But 
the  evidence  in  that  respect  tends  to  show  that  this  was  merely  by 
serving  a  notice  upon  the  bank  that  the  State  Journal  Company 
claimed  an  interest  in  the  stock.  This  notice  was  served  after  Rice 
had  absconded,  greatly  in  debt  to  the  partnership;  and  its  object  was 
merely  to  keep  such  property  of  Rice  as  could  be  ascertained  within 
reach.  It  was  served  before  the  State  Journal  Company  had  any 
notice  that  the  stock  had  been  issued  in  part  payment  for  the  safe. 
A  ratification,  to  be  effectual,  must  be  made  with  knowledge  of  the 
facts;  and  therefore  the  evidence  sustains  the  finding  in  favor  of  the 
defendants  in  that  respect.   .   .  . 

Judgment  affirmed.1 


§  2.    Power  to  Incur  a  Firm  Obligation. 

BOXD  v.  GIBSON  et  al. 

1  Campbell,  185.     1808. 

Assumpsit  for  goods  sold  and  delivered.  It  appeared  that  while  the 
defendants  were  carrying  on  the  trade  of  harness-makers  together, 
Jephson  bought  of  the  plaintiff  a  great  number  of  bits  to  be  made  up 
into  bridles,  which  he  carried  away  himself;  but  that  instead  of  bring- 
ing them  to  the  shop  of  himself  and  his  co-partner,  he  immediately 
pawned  them  to  raise  mone}'  for  his  own  use. 

Lord  Ellenborougii.  Unless  the  seller  is  guilty  of  collusion,  a 
sale  to  one  partner  is  a  sale  to  the  partnership,  with  whatever  view  the 
goods  may  be  bought,  and  to  whatever  purposes  they  may  be  applied. 
I  will  take  it  that  Jephson  here  meant  to  cheat  his  co-partner;  still  the 
seller  is  not  on  that  account  to  suffer.  He  is  innocent ;  and  he  had  a 
right  to  suppose  that  this  individual  acted  for  the  partnership. 

Qarroto  and  Lames,  for  the  plaintiff. 

Gazelee,  for  the  defendants. 

Verdict  for  the  plaintiff. 
1  A  part  of  the  opinion,  dealing  with  questions  of  evidence,  is  omitted. 


312  POWERS   OF   PARTNERS.  [CHAP.  IV. 

BURGAN  v.  LYELL  et  al. 
2  Mich.  102.     1851. 

Pratt,  J.  This  is  an  action  of  assumpsit  for  work  and  labor  per- 
formed for  the  defendants  in  their  mining  business.  It  is  admitted 
that  the  defendants  impleaded  include  all  the  members  of  the  com- 
pany ;  that  they  all  signed  the  original  articles  of  co-partnership  and 
prosecuted  the  business  of  mining  under  them.  These  concessions  con- 
stitute conclusive  evidence  of  a  partnership  in  fact,  in  which  all  the 
defendants,  as  partners,  are  engaged  in  the  business  of  mining. 

It  further  appears,  that  Andrew  Harvie,  a  member  and  one  of  the 
managers  of  the  company,  employed  the  plaintiff  to  perform  the  work  in 
question.     But  whether  his  powers,  as  one  of  the  managers  of  the  com- 
pany, were  general,  or  special  and  limited,  does  not  appear :  nor  is  it 
material  to  a  judicial  determination  of  this  cause,  as  every  member,  in 
legal  contemplation,  without  any  special  powers  being  conferred  upon 
him  by  the  articles  of  co-partnership,  is  not  only  a  principal  of  the  firm, 
but  a  general  agent,  for  all  the  co-partners  in  the  transaction  of  their 
legitimate  company  business  ;  Story  on  Partn.  1  ;  Har.  Ch.  Pr.  172  ;  each 
member  being  vested  with  power  which  enables  him  to  act  at  once  as 
principal ;  and  all  are  regarded  as  being  present  and  sanctioning  the 
engagements  and  contracts  which  they  may  singly  enter  into  within  the 
scope  of  their  partnership  matters.     Story  on  Partn.  158, 159.     Harvie, 
then,  being  one  of  the  partners,  was  vested  with  the  right  of  contracting 
with  the  plaintiff,  and  any  work  performed  by  him  for  the  company, 
under  the  contract,  would  legally  bind  all  of  the  partners  for  the  pay- 
ment of  it.     Although  Harvie,  as  a  single  member,  was  inhibited  from 
making  such  a  contract  by  some  express  provision  of  the  articles  of 
co-partnership,  still  the  rights  of  third  persons,  to  whom  such  provision 
was  unknown,  would  not  be  thereby  affected,  nor  would  it  tend  in  the 
least  to  bar  a  third  person  who  had,  by  the  procurement  of  a  single 
member,  without  notice,  rendered  services  for  the  company,  in  recover- 
ing therefor,  in  a  suit  against  all.     2  Greenl.  Ev.  §  481 ;  Story  on 
Partn.  193.     The  plaintiff,  by  the  procurement  of  Harvie,  labored  for 
the  company,  in  their  mining  operations,  nine  months  at  $18  per  month. 
In  this  labor  of  the  plaintiff  all  the  partners  were  interested,  and  in 
judgment  of  the  law  all  are  presumed  to  have  been  cognizant  of  its 
performance,  and  to  have  derived  at  least  some  benefit  from  it ;  hence, 
all  are,  as  they  should  be  by  every  principle  of  justice,  held  equally 
responsible  to  the  plaintiff  for  the  payment  of  the  services  thus  rendered. 
And  as  it  regards  their  joint  liability,  it  is  a  matter  of  no  legal  moment 
whether  some  of  the  partners  were  dormant  in  fact,  or  whether  they 
subsequently  assented  to  or  dissented  from  the  proceedings  of  those 
with  whom  they  had  intrusted  the  management  of  the  business.     They 
would,  nevertheless,  be  jointly  liable  to  the  plaintiff  for  his  work. 

After  the  services  were  rendered,  the  plaintiff,  as  appears  by  the 


S  2.]  POWER    TO    INCUR    A   FIRM   OBLIGATION.  313 

case,  made  out  an  account  therefor  against  the  company,  the  balance 
of  which,  after  deducting  some  small  sums  which  had  been  paid  and 
credited,  amounted  to  8147.43,  on  which  John  Greenfield,  their  super- 
intending agent  of  the  hands  employed  on  the  mining  location,  certified 
to  John  Winder,  a  member,  and  also  one  of  the  managers  of  the  com- 
pany, that  the  account  was  correct,  and  the  balance  thereof  was  due  to 
the  plaintiff.  Winder  afterwards,  on  presentation  of  the  account  and 
certificate  to  him,  paid  the  plaintiff  $40,  which  was  indorsed  thereon. 

It  is  a  well-settled  principle  of  law,  "that  the  acknowledgment  by 
one  partner,  during  the  continuance  of  the  partnership,  will  amount  to 
a  promise  binding  on  the  firm."  The  certificate  of  the  superintending 
agent,  and  the  recognition  of  the  account  by  a  member  and  one  of  the 
managers  of  the  company,  constitute  sufficient  evidence  of  such 
acknowledgment.  "And  so  a  part  payment  of  a  debt  of  a  firm  by 
one  partner,  during  the  continuance  of  the  partnership,  will  not  only 
extinguish  pro  tanto  the  partnership  debt,  but  will  operate  as  an  ad- 
mission of  the  existence  of  the  residue  of  the  debt,  binding  on  all  the 
partners."  Story  on  Partn.  1  GO.  These  are  rules  of  law  about  which  there 
has  never  been  any  disagreement,  neither  by  legal  authors  nor  courts  of 
last  resort ;  and  by  them,  all  the  members  of  this  company  are  equally 
liable  to  the  plaintiff  for  the  payment  of  the  balance  due  him  on  account. 

The  question,  "  Whether  a  member  who  had  sold  out  his  shares  in  the 
company  stock  would  be  relieved  from  liability  without  notice,  before 
the  work  was  done,  or  from  the  payment  of  debts  created  subsequent  to 
such  sale,"  propounded  to  the  court  for  decision,  is  involved  in  the 
case,  as  it  is  drawn  up  and  submitted  ;  the  answer  is,  that  each  member 
of  the  partnership  will  continue  liable  to  third  persons  for  any  debts  or 
liabilities  incurred  in  the  transaction  of  their  legitimate  company  busi- 
ness, until  a  dissolution  of  the  co-partnership  and  notice  thereof :  Story 
on  Partn.  §§  334-33G ;  and  that  a  dissolution  by  one  of  the  partners 
silently  withdrawing,  or  assigning  his  interest  in  the  company  stock  to 
another,  cannot  legally  have  the  effect  to  relieve  such  partner  from 
liability  for  work  done  before,  or  debts  contracted  after,  thus  silently 
withdrawing  or  assigning. 

The  opinion,  therefore,  of  this  court  is.  that  the  plaintiff  is  entitled 
to  judgment  for  the  balance  of  his  account,  and  interest  from  the  time 
of  its  liquidation. 


ROTHWELL  v.   HUMPHREYS  et  al. 
1  Esp.  406.     1795. 

Assumpsit  for  money  lent.     Plea  of  the  general  issue. 

The  defendants  were  partners,  linen-drapers  in  London  ;  the  plain* 
tiff  was  a  fustian  manufacturer  at  Manchester.  Howell,  one  of  the 
defendants,  had  gone  down  to  Manchester  to  purchase  goods  in  the 


314  POWERS   OF   PARTNERS.  [CHAP.  IV. 

way  of  his  trade,  and  had,  in  fact,  purchased  from  the  plaintiff  to 
the  amount  of  £500.  Being  about  to  return,  he  borrowed  £10  from 
the  plaintiff,  to  defray  his  expenses  to  Loudon  ;  and  having  drawn  a 
bill  on  the  house  in  London  for  the  amount  of  the  goods,  he  included 
in  it  the  £10  so  borrowed,  and  the  bill  was  drawn  for  £510. 

Before  the  arrival  of  the  goods  in  London,  Humphreys  and  Howell, 
the  defendants,  became  insolvent,  and  the  plaintiff  stopped  the  goods 
in  transitu  ;  so  that  the  bill  was  never  presented,  and  the  action  was 
brought  to  recover  the  £10  lent  only. 

These  facts  were  proved  by  a  witness  called  by  the  plaintiff. 

The  defence  relied  upon  was,  that  the  action  was  brought  against 
both  partners  for  a  loan  of  money,  admitted,  by  the  evidence,  to  have 
been  made  to  one  of  them,  and  which,  therefore,  could  not  be  supported. 

Lord  Kenyon  said  that,  though  the  loan  of  money  was  to  one  of  the 
partners,  it  was  lent  to  him  while  employed  on  the  partnership  business, 
and  on  its  account ;  that  as  such  it  was  competent  to  him  to  bind  the 
partnership  to  the  payment  of  a  debt  so  contracted,  and  which  in  fact 
he  had  done  by  including  the  money  lent  in  the  same  bill  with  that  for 
goods  sold  clearly  on  the  partnership  account. 

Erskine  and  Wigley,  for  the  plaintiff. 

Gibbs  and  Espinasse,  for  the  defendants. 

Verdict  for  the  plaintiff . 


PEASE  v.   COLE  et   al. 

53  Conn.  53.     1885. 

Loomis,  J.     The   question   involved    in   this   case   is  whether  one 
member  of  a  co-partnership  formed    for   the   purpose   of  conducting 
a  theatre  in   Hartford  could,  under  the  circumstances  mentioned  in 
the  finding,  bind  the  other  member  by  executing  a  negotiable  promis- 
sory note  in  the  name  of  the  firm  for  money  borrowed.    The  finding,  in 
terms,  excludes  all  express  authority  of  the  other  partner,  and  even 
all  knowledge  of  the  matter  on  his  part.     So  that  any  conclusion  that 
the  note  is  the  note  of  the  firm,  rather  than  of  the  member  executing 
it,  must  necessarily  rest  on  an  authority  to   be   implied.     But  here 
again  the    facts   found    so   circumscribe    the   range   of  inquiry   as  to 
exclude  all  the  ordinary  sources  of  such  authority.     The  circumstances 
from  which  an  authority  may  be  implied  are  identical  with  those  in- 
volved in  a  question  of  ordinary  agency,  for  each  partner  is  regarded 
as  the  accredited  agent  of  the  rest.     In  many  cases  the  decisive  fact 
is  found  in  the  customary  course  of  dealing ;  but  not  so  here,  for  it 
is  found  that  the  note  in  question  was  the  only  note  ever  given  in  the 
name  of  the   firm.     The  co-partnership  first  .commenced  business  in 
August,  1883,  and  on  the  24th  of  the  same  month  the  note  in  suit  was 
given.     There  was  therefore  very  little  time  for  a  course  of  conduct 


§  2.]  POWER    TO   INCUR   A    FIRM    OBLIGATION.  315 

or  usage  of  any  sort  to  grow  up  giving  any  apparent  authority.  The 
finding  traces  the  money  borrowed  only  into  the  hands  of  McCarthy, 
the  partner  who  signed  the  firm  name,  and  no  fact  appears  showing, 
directly  or  presumptively,  that  the  act  was  necessary  for  any  of  the 
purposes  of  the  partnership.  The  only  remaining  source  from  which 
an  authority  may  be  derived  by  implication  must  be  sought  in  the 
nature  and  scope  of  the  partnership  and  in  the  nature  of  the  act; 
and  here,  if  we  examine  the  legal  principles  that  are  applicable,  it  will 
be  found,  not  only  that  all  such  implication  is  wanting,  but  that  the 
presumption  is  directly  against  the  authority  assumed.  The  weight 
of  authority  iu  the  United  States,  and  the  uniform  tenor  of  the 
authorities  in  England,  will  be  found  to  establish  a  controlling  distinc- 
tion in  respect  to  implied  authority  between  commercial  or  trading 
and  non-trading  partnerships.  Story  Partn.  (Gth  ed.)  §  102a;  1 
Lindl.  Partn.  (4th  ed.  by  Ewell)  top  p.  26G,  and  note  1,  and  cases 
there  cited;  1  Colly.  Partn.  648,  658;  Mete.  Cont.  121,  and  cases 
cited  in  the  notes. 

In  a  commercial  partnership  each  acting  partner  is  its  general  agent, 
with  implied  authority  to  act  for  the  firm  in  all  matters  within  the 
scope  of  its  business  ;  and  the  presumption  of  law  is  that  all  com- 
mercial paper  which  bears  the  signature  of  the  firm,  executed  by  one 
of  the  partners,  is  the  paper  of  the  partnership,  for  the  reason  that  the 
giving  of  such  notes  would  be  within  the  usual  course  of  mercantile 
transactions.  But  when  we  pass  to  non-trading  partnerships  the  doc- 
trine of  general  agency  does  not  apply,  and  there  is  no  presumption  of 
authority  to  support  the  act  of  one  partner.  Hence  in  order  to  subject 
the  firm  upon  a  bill  or  note  executed  by  the  partner  in  its  name, 
a  course  of  conduct,  or  usage,  or  other  facts  sufficient  to  warrant  the 
conclusion  that  the  acting  partner  had  been  invested  by  his  co-partners 
with  the  requisite  authority,  must  appear,  or  that  the  firm  has  ratified 
the  act  by  receiving  the  benefit  of  it.  That  the  partnership  in  question 
belongs  to  the  non-trading  class  seems  so  obvious  as  to  need  no  dis- 
cussion. The  brief  in  behalf  of  the  defendant  Cole  cites  many  cases, 
and  giyes  a  long  list  of  pursuits  and  professions  which  those  cases 
establish  as  of  the  non-trading  class,  and  although  the  conduct 
of  a  theatre  is  not  there  mentioned,  yet  the  analogies  manifestly  in- 
clude it.  To  show  the  existence  of  the  distinction  contended  for, 
and  its  application,  we  select  from  a  multitude  of  authorities  the  follow- 
ing in  addition  to  those  previously  referred  to. 

In  Judge  v.  Braswell,  13  Bush,  67,  the  defendants  were  partners 
under  an  agreement  to  engage  in  mining  business  upon  lands  then 
leased,  or  which  might  be  thereafter  acquired.  One  of  the  members 
of  the  firm  purchased,  without  the  others'  consent,  and  took  con- 
veyances of,  mining  land  in  the  name  of  the  firm,  and  gave  the  bills 
of  the  firm  therefor.  In  an  action  by  the  payee  of  the  bills  against  the 
firm,  a  defence  was  made  by  the  other  partners  that  the  purchase  was 
without  their  consent  or  ratification,  and  in  the  plea  they  renounced 


316  POWERS   OF   PARTNERS.  [CHAP.  IV. 

all  claim  to  the  lands  purchased.  The  court  held  that  the  firm  was  not 
liable  on  the  bills,  saying  that  the  power  of  one  partner  to  bind  his  co- 
partners rests  alone  on  the  usage  of  merchants,  and  does  not  amount 
to  a  rule  of  law  in  an^v  other  than  commercial  partnerships.  In  non- 
commercial partnerships,  one  who  seeks  to  hold  the  firm  bound  upon 
a  contract  made  by  a  single  member  must  be  able  to  show  either 
express  authority  or  that  such  is  the  customary  usage  of  the  particular 
branch  of  business  in  which  the  firm  is  engaged,  or  such  facts  as  will 
warrant  the  conclusion  that  the  partner  had  been  invested  by  the 
co-partners  with  the  requisite  authority. 

In  Hedley  v.  Brainbridge,  3  Q,  B.  316,  the  defendants  were  attor- 
neys in  partnership,  and  one  of  the  partners  gave  a  note  in  the  name 
of  the  firm  to  the  plaintiffs  for  the  balance  of  advancements  made 
to  one  partner  who  was  acting  in  behalf  of  the  firm.  The  advances 
were  to  be  laid  out  on  mortgage  by  the  firm.  Lord  Denman,  C.  J., 
in  giving  the  opinion,  said  :  "  No  doubt  a  debt  was  due  from  the  firm, 
but  it  does  not  follow  that  one  partner  had  authority  to  give  a  promis- 
sory note  for  that  debt.  Partners  in  trade  have  authority,  as  regards 
third  persons,  to  bind  the  firm  bjT  bills  of  exchange,  for  it  is  the  usual 
course  of  mercantile  transactions  so  to  do  ;  and  this  authority  is  by 
the  custom  and  law  of  merchants,  which  is  part  of  the  general  law 
of  the  land.  But  the  same  reason  does  not  apply  to  other  partnerships. 
There  is  no  custom  or  usage  that  attorne3's  should  be  parties  to  nego- 
tiable instruments,  nor  is  it  necessaiy  for  the  purposes  of  their  business. 
.  .  .  Upon  the  whole,  we  think  that  the  implied  authority  is  confined 
to  partners  in  trade." 

In  Dickinson  v.  Valpy,  10  Barn.  &  C.  128,  the  plaintiff  was  an 
indorsee  for  value  of  a  bill  of  exchange  drawn  and  accepted  in  the 
name  of  a  mining  partnership  by  order  of  its  regular  directors.  It  was 
held  incumbent  on  the  plaintiff  to  prove  that  the  directors  had  au- 
thority to  bind  the  company- ,  and  that  it  was  necessaiy  for  the  pur- 
pose of  carrying  on  the  business  of  the  company,  or  usual  for  other 
similar  mining  companies,  to  draw  or  accept  bills  of  exchange. 
Opinions  were  given  by  Lord  Tenterden,  C.  J.,  and  Judges  Bayley, 
Littledale,  and  Parke,  and  the  same  distinction  was  made  as  in  other 
cases  between  trading  and  non-trading  partnerships.  See  also  Green- 
slade  v.  Dower,  7  Barn.  &  C.  635. 

In  Levy  v.  Pyne,  tried  before  Baron  Alderson,  1  Car.  &  M.  453, 
it  was  held  that  "  If  a  bill  of  exchange  or  promissory  note  be  drawn, 
accepted,  or  indorsed  b\-  one  of  two  persons  who  are  partners  in  a 
business  which  is  not  a  trade  (e.  g.,  as  attorneys),  in  the  name  of  the 
firm,  .  .  .  the  plaintiff  must  give  evidence  of  the  authority  of  the 
other  partner  to  draw,  accept,  or  indorse  in  the  name  of  the  firm  ;  but 
in  the  case  of  a  commercial  firm  this  is  not  necessan-,  as  there  is  a 
general  authority."  See  also  Rickards  v.  Bennett,  1  Barn.  &  C.  223; 
Garland  v.  Jacomb,  L.  R.  8  Exch.  218. 

In  Smith  v.  Sloan,  37  Wis.  285,  the  court,  by  Lj'on,  J.,  after  an  able 


§  2.]  POWER   TO    INCUR   A   FIRM   OBLIGATION.  317 

and  exhaustive  review  of  the  authorities,  adopted  the  following  propo- 
sition as  fully  sustained  :  "  We  gather  from  all  the  authorities  that  the 
distinction  between  a  trading  and  non-trading  partnership,  in  respect 
to  the  power  of  a  partner  to  bind  his  co-partner  by  negotiable  instru- 
ments, is  not  limited  to  a  mere  presumption  of  such  authority  in 
one  case,  and  the  absence  of  such  presumption  in  the  other,  as  the 
learned  counsel  for  the  plaintiff  argued ;  but  we  think,  and  must 
so  hold,  that  one  partner  in  a  non-trading  partnership  cannot  bind 
the  co-partner  by  bill  or  note,  drawn,  accepted,  or  indorsed  by  him 
in  the  name  of  the  firm,  not  even  for  a  debt  which  the  firm  owes, 
unless  he  have  express  authority  therefor  from  his  co-partner,  or  unless 
the  giving  of  such  instruments  is  necessary  to  the  carrying  on  of  the 
firm  business,  or  is  usual  in  similar  partnerships  ;  and  the  burden  is 
upon  the  holder  of  the  note,  who  sues  upon  it,  to  prove  such  authority, 
necessity,  or  usage." 

In  Ulery  v.  Ginrich,  57  111.  531,  the  partnership  was  for  farming 
purposes,  and  the  note  in  suit  was  given  by  one  in  the  name  of  the  firm 
for  money  borrowed.  It  was  held  to  be  a  non-trading  firm,  and 
the  same   principles  were  adopted  in  the  cases  previously  cited. 

In  Hunt  v.  Chapin,  6  Lans.  139,  it  was  held,  Miller,  P.  J.,  giving 
the  opinion,  "  that  the  rule  which  authorizes  one  member  of  a  co-partner- 
ship to  bind  the  firm  is  onty  applicable  to  business  of  a  trading  nature, 
and  has  no  application  to  partnerships  for  agricultural  purposes,  or 
others  of  a  similar  character."  See  also  Kimbro  y.  Bullitt,  22  How. 
256;  Graves  v.  Kellenberger,  51  Ind.  G6 ;  Bank  v.  Snyder,  10  Mo. 
App.  211. 

In  Chalmers'  Digest  of  the  Law  of  Bills  of  Exchange,  Promissory 
Notes  and  Cheques  (2d  ed.  pp.  68,  69),  the  following  propositions  are 
laid  down  as  well-settled  rules :  "  Art.  77.  A  partner  in  a  trading  firm 
has  prima  facie  authority  to  bind  the  firm  by  drawing,  indorsing,  or 
accepting  bills  in  the  firm  name  for  partnership  purposes ;  and  if 
the  bill  get  into  the  hands  of  a  holder  for  value  without  notice,  the 
presumption  of  authority  becomes  absolute,  and  it  is  immaterial 
whether  it  were  given  for  partnership  purposes  or  not.  Art.  78.  A 
partner  in  a  non-trading  partnership  has  prima  facie  no  authority 
to  render  his  co-partners  liable  by  signing  bills  in  the  partnership 
name.     The  holder  must  show  authority,  actual  or  ostensible." 

Many  more  authorities  equally  pertinent  might  be  cited,  but  these 
will  suffice  to  show  that  the  distinction  relied  upon  is  strongly  sup- 
ported both  in  England  and  in  the  United  States.  While  we  feel 
constrained  to  adopt  the  distinction  between  the  two  cases  of  partner- 
ship so  far  as  the  presumption  of  authority  or  the  want  of  it  is  con- 
cerned, we  do  not  deem  it  necessary  for  the  purposes  of  this  case, 
or  even  quite  reasonable,  to  cany  its  application  so  far  as  to  deny 
absolutely,  as  some  of  the  cases  do,  the  right  to  recover  on  a  note 
given  by  a  non-trading  firm  for  money  borrowed  for  the  firm  and 
appropriated  to  its  use,  or  on  a  note  given  in  payment  of  its  debts. 


318  POWERS   OF   PARTNERS.  [CHAP.  IV. 

Some  authorities  ignore  the  test  of  liability  referred  to,  but  adopt 
another,  which  is  equivalent  in  result.  Chancellor  Kent,  in  his  chap- 
ter on  Partnerships  in  the  third  volume  of  his  Commentaries  (7th  ed. 
p.  44),  omits  the  use  of  the  terms  "  trading  "  and  "  non-trading,"  and 
makes  the  distinction  between  partnerships,  in  respect  to  the  power  of 
one  partner  to  bind  the  firm,  depend  on  the  single  test  of  the  usual 
scope  of  the  business,  in  connection  with  the  subject  matter  of  the 
contract.  This  rule  was  adopted  in  Crosthwait  v.  Ross,  1  Humph.  23, 
where  it  was  held  that  one  partner  in  the  practice  of  medicine  could 
not  bind  the  firm  by  drawing  a  bill  or  note  on  which  to  raise  money, 
because  it  was  not  within  the  scope  of  the  partnership  business. 
Though  under  a  different  name,  the  real  distinction  here  taken  is  be- 
tween partners  in  trade  and  partners  in  an  occupation.  Afterward  the 
same  court,  in  the  case  of  Poole}'  v.  Whitmore,  10  Heisk.  629,  in 
a  most  able  and  elaborate  opinion,  held  that  the  liability  of  a  partner- 
ship firm  of  the  non-trading  class  to  a  bona  fide  holder  of  negotiable 
paper  without  notice,  upon  a  note  indorsed  in  its  name  by  a  member 
for  his  own  benefit,  would  depend  upon  the  nature  of  the  business,  the 
usage  of  trade  and  the  course  of  dealing  of  the  particular  firm.  It  was 
also  held  that  where  the  nature  of  the  partnership  is  such  that  it  may 
or  ma}r  not  be  proper  to  deal  in  negotiable  instruments  (as  in  that  case, 
which  was  a  publishing  company),  it  was  error  in  the  circuit  judge  to 
charge,  without  qualification,  that  the  firm  was  liable  if  the  holder 
received  the  note  before  maturity,  in  the  due  course  of  trade,  and 
without  notice.  We  think  the  same  principle,  under  the  circumstances 
of  the  case  at  bar,  made  it  error  in  the  court  below  to  hold  the  firm 
liable.  This  court  hitherto  has  had  no  occasion  to  give  prominence 
to  the  distinction  under  discussion.  The  nature  of  the  partnership 
business  has  however  been  made  a  ground  for  a  presumption  and 
a  test  of  liability. 

In  Walcott  v.  Canfield,  3  Conn.  194,  the  defendants  were  partners 
in  running  a  line  of  stages  from  Hartford  to  Albany  and  back.  One 
of  the  partners  by  an  advertisement  promised  to  transport  passengers 
and  leave  them  at  Albany  in  a  specified  time,  upon  which  agreement 
the  suit  was  based.  The  advertisement,  being  the  act  of  one  partner, 
was  held  not  even  admissible  in  evidence  against  the  firm,  without 
previously  establishing  the  authority  of  that  one  to  bind  the  others. 
Hosmer,  C.  J.,  in  delivering  the  opinion,  on  page  198,  said  :  "  A  co- 
partnership formed  to  transport  passengers  and  their  baggage  in 
a  stage  does  not  authorize  one  of  the  partners  to  bind  the  firm  by 
an  agreement  that  he  will  convey  a  person  a  certain  distance  within 
a  specified  time.  Unless  he  had  special  authority,  he  could  only  obli- 
gate himself  by  a  contract  not  within  the  scope  of  the  connection,  and 
not  his  partners,  who  had  never  expressly  or  impliedly  assented." 
The  subject  matter  of  the  contract  was  different  from  the  case  at  bar, 
but  it  seems  even  more  closely  connected  with  the  scope  of  the  business 
than  the  giving  of  the  note  in  suit. 


§  2.]  POWER   TO   INCUR    A   FIRM    OBLIGATION.  319 

Many  authorities  lay  down  the  unqualified  proposition  as  if  it  was 
applicable  to  all  partnerships,  that  if  one  partner  raises  rnoney  on 
a  negotiable  bill  or  note  signed  or  indorsed  in  the  name  of  the  firm, 
and  which  comes  into  the  hands  of  a  bona  fide  purchaser,  the  partner- 
ship is  bound,  although  it  was  in  fact  for  the  individual  use  of  the  act- 
ing partner.  The  doctrine  is  so  stated  in  substance  by  this  court 
in  Insurance  Co.  v.  Bennett,  5  Conn.  574.  The  case  shows  that  the 
partnership  was  a  commercial  one.  We  do  not  say  however  that 
public  convenience  does  not  demand  the  same  rule  in  the  case  of  non- 
commercial partnerships,  where  the  holder  was  not  advised  of  the 
nature  of  the  partnership  and  its  course  of  dealing,  or  of  other  circum- 
stances to  put  him  on  inquiry,  and  where  the  circumstances  would 
justify  the  belief  that  he  was  dealing  with  the  partnership.  We  may 
well  leave  this  for  future  consideration,  for  upon  the  facts  found,  we 
think  the  plaintiffs  right  was  impaired  by  reason  of  what  he  knew  in 
connection  with  the  circumstances.  We  do  not  forget  that  the  court 
below,  in  terms,  found  that  the  plaintiff  purchased  the  note  in  good 
faith,  without  notice  of  any  defect.  This  of  course  means  simply  that 
there  was  no  actual  bad  faith  and  no  actual  notice,  and  as  matter  of 
fact,  it  is  final ;  but  at  the  same  time  the  court  found  special  facts  as 
to  the  plaintiff's  knowledge  and  action  which  we  must  also  consider, 
and  if  we  find  constructive  notice  or  constructive  fraud,  the  law  must 
prevail. 

The  plaintiff,  as  holder,  must  stand  affected  by  the  nature  of  the 
partnership,  of  which  he  was  fully  advised.     He  purchased  the  note  in 
the  face  of  the  presumption  that  it  was  unauthorized.     To  show  the 
general  nature  of  the  facts  which  courts  have  held  to  be  constructive 
notice,  we  cite  a  few  cases.     In  Livingston  v.  Roosevelt,  4  Johns.  278, 
A.  and  B.  formed  a  co-partnership  under  the  style  of  A.  &  Co.,  in  the 
business  of  sugar  refining,  and  so  advertised  in  the  newspapers.     B. 
afterward,  without  the  knowledge  of  A.,  bought  a  quantity  of  brandy, 
for  which  he  gave  a  note  indorsed  by  him  with  the  name  of  the  firm. 
The  plaintiff,  who  was  an  indorsee  of  the  note,  took  the  newspapers  in 
which  the  firm's  business  was  advertised.    Kent,  C.  J.,  after  comment- 
ing on  certain  facts  tending  to  show  that  the  plaintiff  knew  that  the 
purchase  of  the  brandy  was  not  a  partnership  concern,  proceeded  to  lay 
down  these  principles  :  "  But  if  the  plaintiff  did  not  in  fact  know  that 
the  purchase  was  made  by  C.  J.  Roosevelt  on  his  own  account,  and 
acted  under  the  mistaken  impression  that  it  was  a  partnership  purchase, 
still  the  firm  was  not  bound  by  the  indorsement,  because  the  facts  dis- 
closed amounted  to  constructive  notice  or  notice  in  law.   .   .   .   When  a 
person  deals  with  one  of  the  partners  in  a  matter  not  within  the  scope 
of  the  partnership,  the  intendment  of  the  law  will  be  that  he  deals  with 
him  on  his  private  account,  notwithstanding  the  partner  may  give  the 
partnership  name,  unless  there  be  circumstances  to  destroy  that  pre- 
sumption.    'If,'  says  Lord   Eldon,  Ex  fHirte  Bonbonus,  8  Ves.  all, 
1  under  the  circumstances  the  person  taking  the  paper  can  be  considered 


320  POWERS    OF   PARTNERS.      •  |_CHAP.  IV. 

as  being  advertised  that  it  was  not  intended  to  be  a  partnership  pro- 
ceeding, the  partnership  is  not  bound.'  Public  notice  of  the  object  of 
a  co-partnership,  the  declared  and  habitual  business  carried  on,  the  store 
the  counting-house,  the  sign,  etc.,  are  the  usual  and  regular  indicia  by 
which  the  nature  and  extent  of  a  partnership  are  to  be  ascertained. 
When  the  business  of  a  partnership  is  thus  defined  and  publicly  de- 
clared, and  the  company  do  not  depart  from  that  particular  business, 
nor  appear  to  the  world  in  any  other  light  than  the  one  thus  exhibited, 
one  of  the  partners  cannot  make  a  valid  partnership  engagement  on  any 
other  than  a  partnership  account.  .  .  .  When  the  public  have  the  usual 
means  of  knowledge  given  them,  and  no  means  have  been  suffered  by 
the  partnership  to  mislead  them,  every  man  is  presumed  to  know  the 
extent  of  the  partnership  with  whose  members  he  deals." 

In  1  Colly er  on  Partnership,  page  650,  it  is  said  that,  "  A  note  given 
b}'  one  partner  in  the  partnership  name,  within  the  scope  of  the  part- 
nership, is  binding  upon  the  firm,  but  the  payee  is  bound  to  know 
whether  it  is  within  the  scope  of  his  apparent  authority,  and  if  it  is 
in  excess  thereof  the  firm  is  not  responsible."  In  Cocke  v.  Bank,  3 
Ala.  175,  the  note  in  suit  was  signed  in  the  partnership  name  of  J.  F. 
&  W.  Cocke,  who  were  partners  in  keeping  a  tavern.  It  was  executed 
by  J.  F.  Cocke,  and  payable  to  Lea  &  Langdon  for  their  accommoda- 
tion, without  the  knowledge  of  the  other  partner,  Woodson  Cocke. 
No  actual  knowledge  of  the  circumstances  was  shown  on  the  part  of 
the  bank,  which  sued  an  indorsee,  but  it  was  assumed  to  have  been  the 
duty  of  the  bank  to  make  an  inquiry.  Goldthwaite,  J.,  in  delivering 
the  opinion,  said  (page  180)  :  "The  law  presumes  that  the  bank,  if 
\t  inquired  at  all  into  the  partnership  of  the  defendants,  must  have 
received  information  that  they  were  not  partners  in  a  mercantile  trade, 
but  only  in  the  business  of  tavern-keeping.  This  ascertained,  it  took 
the  note  at  its  peril,  and  must  have  relied  on  the  faith  of  the  indorsers." 
It  was  held  that  Woodson  Cocke,  the  partner  who  had  no  knowledge  of 
the  transaction,  was  not  liable. 

In  the  case  at  bar  the  plaintiff  had  full  and  actual  knowledge  of  the 
nature  of  the  partnership,  and  the  law  attributed  to  him  knowledge  also 
that  one  partner  could  not  bind  the  other  by  bill  or  note  without  au- 
thority, and  knowing,  as  he  did,  that  the  note  had  been  written  and 
signed  by  McCarthy,  who  was  irresponsible,  and  that  if  he  purchased 
it,  it  would  be  upon  the  credit  of  Cole  alone,  and  having  also  actual 
knowledge  of  a  course  of  dealing  which  avoided  McCarthy  and  pointed 
to  Cole  alone  as  the  financial  representative  of  the  firm,  it  seems  to  us 
the  plaintiff  took  the  note  at  his  peril.  It  was  very  strange  for  the 
plaintiff  to  inquire  of  the  one  who  had  used  the  firm  name  if  it  was 
the  note  of  the  firm,  and  omit  entirely,  when  he  had  ample  and  easy 
opportunity,  to  inquire  of  the  other  partner,  on  whose  sole  credit  he 
depended ;  but  the  court  has  found  that  the  failure  to  inquire  of  Cole 
was  not  owing  to  a  belief  that  the  inquiry  would  result  in  finding  the 
note  invalid,  and  this  we  must  accept  as  true.     Ordinarily  such  a  finding 


c  2."|  POWER   TO    INCUR    A   FIRM   OBLIGATION.  321 

would  save  the  rights  of  a  holder  in  good  faith  of  negotiable  paper,  but 
the  ^reat  difficulty  in  the  present  case  is  that  the  note  was  purchased 
with  constructive  notice  that  it  was  not  within  the  apparent  scope  of 
the  partnership  business,  and  prima  facie  was  not  the  note  of  the  firm  ; 
and  the  actual  course  of  business,  so  far  as  it  was  known  to  the  plaintiff, 
tended  to  increase  rather  than  allay  the  suspicion  of  a  want  of  authority. 

But  the  plaintiff  contends  that  the  judgment  in  his  favor  cannot  be 
disturbed  because  the  burden  of  proof  was  on  the  defendant.  On  this 
general  subject  of  the  burden  of  proof,  most  of  the  authorities  cited  in 
another  connection  to  show  the  distinction  between  the  two  classes  of 
partnerships,  and  many  others  that  we  might  cite,  assert  most  posi- 
tively that  in  the  case  of  non-commercial  partnerships  the  burden  is  on 
the  holder  of  the  note.  But  we  concede  that  many  cases  can  be  found 
which  in  terms  would  seem  to  place  the  burden  on  the  defendant.  In 
Borne  of  these  cases  the  partnerships  were  in  fact  commercial,  as  in  the 
case  of  Faler  v.  Jordan,  44  Miss.  283.  In  Doty  v.  Bates,  11  Johns. 
541,  Flatt,  J.,  giving  the  opinion,  said:  "The  partnership  being  ad- 
mitted, the  presumption  of  law  is  that  a  note  made  by  one  partner  in 
the  name  of  the  firm  was  given  in  the  regular  course  of  partnership 
dealings  until  the  contrary  is  shown  on  the  part  of  the  defendants." 

The  case  is  so  brief  in  the  report  that  we  cannot  see  clearly  what  was 
involved  in  the  admission  of  the  partnership  which  furnished  the  basis 
for  the  presumption.  It  incidently  appears  in  the  description  of  the 
firm  that  its  business  was  tanning,  currying,  and  shoemaking.  This 
doubtless  involved  the  buying  of  hides,  bark,  and  materials  for  tanning, 
and  the  sale  of  leather  and  shoes.  The  basis  of  the  presumption  was 
doubtless  the  apparent  scope  of  the  business.  In  Holmes  v.  Porter,  39 
Me.  157,  the  head-note  omits  an  important  qualification.  The  propo- 
sition laid  down  by  the  court  is  that,  k'  When  the  contract  is  made  in  the 
name  of  the  firm,  it  will  prima  facie  bind  the  firm,  unless  it  is  ultra  the 
business  of  the  firm."  The  head-note  omits  the  last  clause.  The  case 
of  Carrier  v.  Cameron,  31  Mich.  373,  was  relied  upon  by  the  plaintiff 
to  show  that  the  burden  was  on  the  defendant.  In  terms  it  so  holds, 
but  a  brief  analysis  will  show  that  it  is  not  inconsistent  with  our  posi- 
tion in  this  case,  and  will  suggest  a  mode  of  reconciling  many  appar- 
ently conflicting  cases.  There  was  nothing  at  all  in  the  case  to  show 
the  nature  of  the  partnership,  and  the  plaintiff's  knowledge  of  it. 
Graves,  C.  J.,  in  giving  the  opinion,  stated  the  question  as  follows: 
"  Was  the  plaintiff  below  required,  in  order  to  make  out  a  prima  facie 
case,  to  show  in  the  outset  that  Carrier  had  express  authority  to  make 
notes  generally,  or  else  to  show  either  that  the  co-partnership  was  one 
of  the  class  in  respect  to  which  such  authority  is  presumed,  or  that  its 
course  of  business  had  been  such  as  to  imply  authority,  or  that  the  sign- 
ing by  Carrier  had  been  approved  or  ratified?"  The  question  was 
answered  in  the  negative,  upon  the  authority  of  Littell  v.  Fitch,  11  Mich. 
525.  It  is  to  be  noticed  that  the  question  was  simply  as  to  the  burden 
of  proof  after  the  fact  of  partnership  was  admitted,  and  before  the  na- 

21 


322  POWERS   OF    PARTNERS.  [CHAP.  IV. 

ture  or  class  of  the  partnership  appeared.  That  being  the  position  of 
the  case,  the  court  well  remarked  that,  "  It  was  not  needful  for  the  plain- 
tiff, by  any  positive  averment  or  positive  proof,  to  negative  a  defence 
which,  in  virtue  of  a  general  presumption,  would  be  intended  not  to 
exist.  He  could  not  be  required  to  go  into  particular  proof  on  such  a 
point  until  some  proof  should  appear  in  contravention  of  the  presump- 
tion." In  this  statement  of  the  law  we  fully  concur,  but  it  is  not  appli- 
cable to  the  facts  in  the  case  at  bar,  because  the  controlling  fact  in  the 
proposition  is  wanting.  Proof  in  contravention  of  the  presumption, 
which  at  the  outset  was  in  favor  of  the  plaintiff,  had  appeared,  and  had 
resulted  in  the  finding  of  the  opposing  facts  ;  and  it  is  significant  that 
all  the  facts  which  the  above  question  impliedly  concedes  to  be  sufficient 
to  overcome  the  presumption  referred  to  are  distinctly  found,  namely, 
that  there  was  no  express  authority  to  make  notes  generally  or  to  give 
this  note  ;  that  the  partnership  was  of  the  non-trading  class,  in  respect 
to  which  no  authority  can  be  implied ;  that  there  was  no  course  of 
business  that  could  imply  authority,  and  that  the  giving  of  this  note  had 
never  been  ratified  or  approved  by  Cole.  Whatever  presumption  there- 
fore there  might  have  been  in  favor  of  the  plaintiff  at  the  outset  had  been 
fully  overcome,  and  if  there  exists  any  further  fact  from  which  an 
authority  might  be  implied,  the  plaintiff  must  show  it  or  lose  his  case. 

It  is  manifest  that  in  the  Michigan  case,  as  indeed  in  all  the  cases 
treating  of  the  burden  of  proof  in  suits  on  notes  alleged  to  have  been 
executed  by  partnerships,  an  illegitimate  use  has  been  made  of  the  term 
"burden  of  proof."  Properly  it  is  applied  only  to  a  party  affirming 
some  fact  essential  to  the  support  of  his  case.  Thus  used,  it  never 
shifts  from  side  to  side  during  the  trial.  Looseby  used,  as  in  the  cases 
referred  to,  it  is  confounded  with  the  weight  of  evidence,  a  very  differ- 
ent thing,  which  often  shifts  from  one  side  to  the  other  as  facts  and 
presumptions  appear  and  are  overcome  ;  and  in  this  indiscriminate  use 
of  the  term  "burden  of  proof"  much  of  the  apparent  conflict  in  the 
cases  has  its  origin.  For  after  all  the  test  of  the  burden  of  proof  is 
very  simple,  and  so  is  the  question  of  the  weight  of  evidence,  and  there 
is  no  contrariety  in  the  principle  adopted  by  the  authorities.  In  the 
light  of  principle,  we  think  it  may  be  demonstrated  that  the  position  of 
the  plaintiff  is  untenable.  A  partnership  has  been  sued  on  a  note  exe- 
cuted in  its  name.  Upon  the  trial  the  note  is  produced  by  the  plaintiff, 
and  the  first  question  is,  "Was  it  the  note  of  the  firm  ?  The  plaintiff 
takes  the  affirmative  of  this  issue,  because,  if  no  evidence  is  offered  on 
either  side,  he  must  fail.  He  has  then  the  burden  of  proof,  and  it  re- 
mains on  him,  and  does  not  pass  at  all  to  the  defendant.  But  suppose 
now  it  is  shown  or  admitted  that  the  partnership  alleged  exists,  and 
that  one  of  the  firm  executed  and  delivered  the  note  in  its  name.  By 
virtue  of  the  general  presumption  that  authority  was  given  b}'  the  part- 
nership, the  plaintiff  is  entitled  to  recover,  if  nothing  further  appears, 
because  the  weight  of  evidence  is  on  his  side.  But  suppose  the  defend- 
ants  take   their   turn,    and  prove    the   identical  facts  here  found,  — 


R  2.]  POWER   TO   INCUR    A    FIRM    OBLIGATION.  323 

that  there  was  no  authority,  general  or  special,  given  ;  no  ratification 
of  the  act ;  no  course  of  dealing  to  imply  authority  ;  and  furthermore 
that  the  partnership  was  of  a  class  from  which  no  authority  can  be  im- 
plied. Is  the  plaintiff  now  entitled  to  a  verdict?  Has  he  proved  that 
the  note  was  the  note  of  the  firm?  Surely  not.  What  then  is  left  on 
which  to  rest  his  case  ?  The  preponderance  of  evidence  is  not  with  him. 
The  burden  upon  him  to  show  that  it  was  a  partnership  note  has  not 
now  been  met.  But  it  is  said  that  there  is  a  realm  of  inquiry  not 
touched  by  either  party  ;  that  is,  that  it  was  not  shown  whether  or 
not  the  partnership  had  the  benefit  of  the  consideration  of  the  note.  If 
such  a  fact  appeared,  we  concede,  for  the  purposes  of  this  case,  that  it 
would- tend  to  show  that  the  note  was  the  note  of  the  firm.  But  if  any 
authority  could  not  be  implied  as  the  case  stood  before,  can  it  now  be 
implied?  The  case  stands  precisely  as  before.  There  can  be  no  change 
in  the  weight  of  the  evidence,  because  nothing  has  been  added  ;  and  the 
claim  of  the  plaintiff  would  seem  to  be  reduced  to  the  absurdity  that  he 
is  to  have  the  same  benefit  from  an  unproved  fact  as  from  one  proved. 

There  was  error  in  the  judgment  complained  of,  and  as  against  the 
defendant  Cole  it  is  reversed,  and  a  new  trial  ordered. 

The  other  judges  concurred,  except  Granger,  J.,  who  dissented. 


PHILLIPS  v.   STANZELL  et  al. 

28  S.  W.  (Tex.  Civil  App.)  900.     1895. 

Hexry  Phillips  brought  this  suit,  September  22,  1892,  against 
Stanzell  &  Levinski,  a  firm  composed  of  C.  J.  Stanzell  and  L.  Levinski, 
and  one  Ed.  Hatton,  for  rnoney  had  and  received  of  plaintiff  by  Stanzell 
&  Levinski,  to  wit : 

December  28,  1891 $300  00 

January  14,  1892 50  00 

January  25,  1892 10  00 

February  1,  1892 180  00 

February  G,  1892 20  00 

$500  00 

—  all  of  said  sums  alleged  to  be  due  upon  demand.  Also  upon  a  note 
Of  Stanzell  &  Levinski,  of  date  February  2,  1892,  for  $350,  due  at  60 
days,  bearing  10  per  cent  per  annum  interest  after  maturity,  and  pro- 
viding for  10  per  cent  on  amount  as  attorney's  fees  in  case  it  should 
be  placed  in  the  hands  of  an  attorney  for  collection.  Also  upon  another 
note  of  Stanzell  &  Levinski,  of  date  February  fi,  1892,  for  $175,  due  at 
80  days,  bearing  12  per  cent  interest  per  annum  from  maturity,  and 
providing  for  10  per  cent  on  amount  as  attorney's  fees  in  case  suit 
should  be  brought  thereon.     All  of  the  indebtedness  alleged  to  amount 


D' 


324  POWERS    OF   PARTNERS.  [CHAP.  IV. 

to  $1,085.  Principal  defence,  that  the  demands  sued  on  were  made 
and  incurred  by  Louis  Levinski  for  his  own  individual  use,  and  without 
the  authority  of  the  firm  ;  and  that  the  firm  never  got  the  benefit  of  the 
money  loaned  for  which  the  debt  was  incurred,  — of  which  facts  plaintiff 
had  notice.  Trial  by  the  court  without  a  jury,  May  23,  1893,  and  judg- 
ment rendered  for  all  the  defendants,  from  which  this  appeal  is  taken. 

Jones,  Kendall,  &  Sleeper,  for  appellant. 

Herring  <&  Kelley,  for  appellees. 

Collard,  J.  The  assignments  of  error  by  appellant  question  the 
correctness  of  the  court's  decision,  upon  the  ground  that  the  evidence 
shows  the  amounts  sued  for  were  obligations  of  the  firm,  for  loans  to 
the  firm  upon  application  of  one  of  its  members,  who  had  power  to 
borrow  the  money  for  the  firm,  and  that  the  amounts  borrowed  were 
used  by  the  firm,  and  that,  if  the  money  loaned  was  for  any  other  pur- 
pose outside  the  firm  business,  plaintiff  had  no  notice  of  the  fact,  and 
would  not  be  affected  thereby. 

Appellees  contend  that  the  firm  of  Stanzell  &  Levinski,  formed  for 
the  purpose  of  carrying  on  a  retail  liquor  saloon,  was  not  a  trading  firm, 
and  that  one  member  thereof  had  not  implied  power  to  borrow  money 
and  contract  the  liabilities  sued  on,  it  not  appearing  that  the  other 
member  of  the  firm  authorized  or  consented  to  the  same. 

We  think  the  co-partnership  to  carry  on  a  retail  liquor  saloon  was  a 
trading  partnership,  or  trading  firm,  and  each  member  thereof  had  the 
implied  power  to  borrow  money  and  execute  commercial  paper,  and 
indorse  the  same  in  the  name  of  the  firm.  The  definition  of  a  "  trading 
firm  "  found  in  1  Bates,  Partn.  §  327,  has  been  approved  by  the  Supreme 
Court  of  this  State  in  the  case  of  Randall  v.  Meredeth,  76  Tex.  683.  It 
is:  "If  the  partnership  contemplates  the  periodical  or  continuous  or 
frequent  purchasing  not  as  incidental  to  an  occupation,  but  for  the  pur- 
pose of  selling  again  the  thing  purchased,  either  in  its  original  or  manu- 
factured state,  it  is  a  trading  partnership  ;  otherwise  it  is  not." 

Trading  firms  have  the  power  to  borrow  money,  and  it  is  one  of  the 
incidents  of  the  business,  and  allied  to  this  is  the  power  to  make,  draw, 
accept,  and  indorse  mercantile  paper  in  the  usual  routine  of  business, 
and  one  member  of  such  firm  can  ordinarily  so  bind  the  firm.  Each 
member  of  the  firm  is  in  law  deemed  the  agent  of  the  firm  to  issue 
negotiable  commercial  paper.  1  Bates,  Partn.  §§  341,  370;  Schneider 
v.  Sansom,  62  Tex.  201.  Such  transactions  are  in  the  usual  course  of 
business.  This  power  extends  to  the  running  of  other  enterprises  in 
which  the  firm  has  taken  an  interest.  1  Bates,  Partn.  §  382.  But  it  is 
well  settled  that  a  member  of  a  trading  firm  cannot  execute  a  note  or 
bill  to  pay  his  separate  debt,  and  a  note  to  pa}-  a  private  debt,  includ- 
ing a  debt  of  the  firm,  is  not  binding  except  as  to  the  firm  debt.  Id. 
§  347.  If  one  partner  in  a  trading  firm  borrow  money  for  the  firm  on 
a  note  made  by  him  for  the  firm,  or  lead  the  lender  to  believe  the  loan 
is  for  the  firm,  the  firm  is  liable,  though  he  may  subsequently  apply  the 
avails  to  his  own  use.     Id.  §  348.     If  a  partner  borrow  money  or 


S  2.]  POWER    TO    INCUR   A   FIRM   OBLIGATION.  325 

execute  negotiable  commercial  paper  for  purposes  outside  of  the  busi- 
ness, or  for  fictitious  purposes,  in  fraud  of  the  firm,  and  the  lender  or 
pavee  has  notice  of  the  facts,  the  firm  is  not  liable  to  him,  but  it  would 
be  liable  to  an  innocent  holder.     Id.  §§  312,  348. 

Prima  fade  the  note  or  acceptance  of  one  partner  in  the  firm  name 
in  a  trading  firm  binds  the  partnership,  and  the  burden  of  proof  that  it 
was  a  fraud,  or  for  a  fictitious  debt,  or  for  purposes  beyond  the  scope 
of  the  business,  is  on  the  firm.  Crozier  v.  Kirker,  4  Tex.  259  ;  Powell 
v.  Messer,  18  Tex.  407  ;  Randall  v.  Meredeth,  76  Tex.  683.  In  non- 
trading  firms  the  rule  is  different.  The  doctrine  of  innocent  purchasers 
does  not  apply.     1  Bates,  Partn.  p.  355,  §§  343,  345. 

Testing  the  rights  of  the  parties  in  the  case  at  bar  by  the  foregoing 
principles,  it  must  be  held  that  the  firm  of  Stanzell  &  Levinski  were 
bound  to  pa}*  the  sums  borrowed  b}-  L.  Levinski  in  so  far  as  he  under- 
took to  bind  the  firm,  if  he  obtained  the  same  in  the  name  of  the  firm, 
unless  the  same  was  obtained  by  him  for  his  own  private  purposes,  for 
purposes  outside  the  scope  of  the  business,  or  to  pa}T  fictitious  debts ; 
in  which  case,  to  exempt  the  firm  from  liability,  it  must  appear  that 
J.  Levinski  or  plaintiff  had  notice  of  the  facts  constituting  the  firm's 
exemption  from  liability.  The  defence  set  up  by  the  firm  and  by 
Stanzell  was  that  the  debts  and  the  notes  were  made  without  the 
authority  of  the  firm  and  on  the  private  account  of  L.  Levinski.  We 
have  seen  that  the  law  vests  in  one  of  the  firm  the  power  to  create  the 
debts  ostensibly  for  the  firm,  and  no  express  authority  was  required  to 
bind  the  co-partnership,  unless  notice  was  brought  home  to  plaintiff  or 
his  agent  that  the  authority  so  given  by  law  to  one  of  the  firm  was 
abused,  and  that  the  transactions  were  on  account  of  L.  Levinski  alone 
and  not  for  the  firm. 

The  testimony  conclusively  shows  that  a  part  of  the  debt  sued  on  was 
for  the  use  of  the  firm,  viz.,  the  note  for  $350,  deposited  in  bank  as  a 
basis  of  credit  for  the  firm,  upon  which  defendant  drew  in  the  course  of 
the  business.  For  this  amount  the  firm  is  certainly  bound,  and  for  all 
other  amounts  and  debts  shown  to  have  been  obtained  and  incurred  in 
the  name  of  the  firm  for  the  ostensible  purpose  of  paying  its  debts  or 
for  its  use,  unless  it  be  shown  that  the  debts  were  for  the  separate  use 
of  L.  Levinski,  for  fictitious  debts  due  by  the  firm,  or  other  purposes 
outside  the  scope  of  the  business,  known  to  plaintiff  or  his  agent. 

The  draft  for  $300  was  made  in  favor  of  L.  Levinski  in  person,  and 
the  firm  would  not  be  bound  for  that,  even  upon  the  representation  of 
L.  Levinski  to  plaintiffs  agent  at  the  time  of  the  loan  that  it  was  to 
pay  debts  of  the  firm  or  for  firm  uses,  unless  it  be  shown  that  the 
amount  so  obtained  actually  went  into  the  firm  business  as  a  credit  or 
to  pay  its  debts,  and  the  burden  of  proof  is  upon  the  plaintiff  to  show 
such  fact  But  as  to  all  other  claims  made  in  the  name  of  the  firm,  and 
for  its  use,  the  burden  of  proof  is  upon  the  defendant  to  establish  the 
facts  constituting  the  exemption  from  liability.  If  L.  Levinski  obtained 
money  or  credits  from  plaintiffs  agent,  inducing  him  to  believe  that 


326  POWEKS    OF    PAETNERS.  [CHAP.  IV. 

they  were  for  the  firm's  use  or  to  pay  its  debts,  it  would  be  liable  for 
the  money  or  credit  so  obtained,  though  L.  Levinski  may  have  after- 
wards misapplied  the  funds.  Notice  to  plaintiff's  agent  may  be  shown 
by  circumstances,  and  notice  or  not  is  a  question  for  the  jury  or  the 
court  trying  the  facts.  All  the  money  sued  for  that  was  obtained  by 
L.  Levinski  upon  the  credit  of  the  firm,  that  went  into  the  business, 
would  be  a  firm  liability,  and  so  would  all  other  money  obtained  from 
plaintiff's  agent  —  the  latter  acting  in  good  faith  —  on  the  credit  of  the 
firm  and  loaned  to  the  firm.  If  plaintiff's  agent  did  not  act  in  good 
faith,  and  gave  the  firm  credit  for  money  which  he  ought,  as  a  man  of 
ordinary  prudence,  to  have  known  was  for  purposes  not  connected  with 
the  firm  business,  he  must  himself  sustain  the  loss,  and  neither  he  nor 
his  principal  can  look  to  the  firm  or  Stanzell  for  the  same.  Because  of 
the  error  in  the  judgment  pointed  out,  —  failing  to  allow  plaintiff  the 
amount  due  on  the  note  for  $350,  clearby  shown  to  be  due,  —  and 
because  it  seems  the  case  was  tried  upon  incorrect  principles,  that  may 
have  improperly  defeated  a  recovery  by  plaintiff  for  all  the  amount  sued 
on  except  the  check  for  $300  payable  to  L.  Levinski  in  person,  the 
judgment  of  the  lower  court  is  reversed,  and  the  cause  remanded  for 
another  trial.  Reversed  and  remanded. 


BUETTNER   v.    STEINBRECHER  et  al. 

91  la.  588:  60  N.  W.  177.     1895. 

This  is  an  action  at  law  upon  a  promissory  note  purporting  to  be 
signed  by  the  firm  of  Steinbrecher  &  Hertzler,  against  the  firm,  John 
Steinbrecher  and  A.  Hertzler,  the  individual  members  thereof.  In 
defence,  the  firm  and  A.  Hertzler  claimed  that  the  note  was  executed 
without  their  knowledge  or  consent ;  that  the  firm  name  was  signed 
without  authority;  and  that  the  co-partnership  received  no  part  of 
the  consideration  of  the  note,  and  was  in  no  way  benefited  thereby. 
They  further  averred  that  the  note  was  executed  by  one  John  Stein- 
brecher, for  his  individual  use  and  benefit,  which  plaintiff  well  knew, 
or  had  good  reason  to  know,  at  the  time  he  took  the  note.  Defendant 
Steinbrecher,  in  his  answer,  averred  that  no  consideration  passed  to 
the  firm  for  the  note,  and  that  the  giving  of  the  note  did  not  in  any 
way  pertain  to  the  business  of  the  firm,  which  the  plaintiff  knew 
at  the  time  he  took  it.  Upon  the  issues  thus  joined  there  was 
a  trial  to  the  court,  a  jury  being  waived,  and  the  court  rendered 
judgment  against  all  the  defendants  for  the  full  amount  of  the 
note  in  suit.  Defendants  Steinbrecher  &  Hertzler  and  A.  Hertzler 
appeal. 

J.  T.  lllick,  for  appellants. 

La  Monte  Coivles  and  C.  L.  Foor,  for  appellee. 


£  2.]  POWER   TO   INCUR   A   FIRM    OBLIGATION.  327 

Deemer,   J.      1.    The  appellants  contend   that  the  court  erred   in 
rendering  judgment  against  them,  for  that  the  evidence  shows  that 
the  note   in   suit  was   given,  not  for  firm  purposes,  but  to  compass 
some  private  ends  of  the  defendant  Steinbrecher ;  that  Steinbrecher 
bad  no  authority  to  execute  the  note  in  the  name  of  the  firm,  because 
the  transaction  was  not  within  the  scope  of  the  partnership  business. 
At  the  time  of  the  execution  of  the  note  in  suit  the  defendant  firm 
was  engaged  in  the  boot  and  shoe  business  in  Burlington,  Iowa,  and, 
the  note  being  executed  in  the  name  of  the  firm,  was  presumptively 
with  authority,  and  within  the  scope  of  the  partnership  business;  and 
the  burden  was   upon   the  defendants   to  show  that  it  was   without 
authority,  and  outside  of  the  business  of  the  partnership.     Sherwood 
v.  Snow,  46   Iowa,  481;  Doty   v.  Bates,    11   Johns,    oil;  Carrier   /-. 
Cameron,  31  Mich.  373;  Whitaker  v.  Brown,  16  Wend.  505;  McMullan 
r.  McKenzie,  2  G.   Greene,  .368.     A  note  or  bill  given  or  accepted 
by  one  partner  in  the  name  of  the  firm  will  be  binding  upon  the  firm, 
although  the  partner  may  have  used  his  power  for  his  own  benefit, 
provided  the  lender  or  holder  of  the  paper  was  not  aware  of  the  fraud. 
See  Sherwood  v.  Snow,  s"j/ra;  Bates,  Partn.  §§  348,  370,  and  cases 
cited;  Towle  v.  Dunham  (Mich.),  47  N.  W.  683.     See  also  Piatt  v. 
Koehler,  01  Iowa,  592,  60  N.  W.  178.     There  was  ample  evidence  to 
justify  the  finding  by  the  trial  court  that  the  note  was  given  for  part- 
nership purposes.     From  the  testimony  it  appears  that  plaintiff  was 
the  owner  of  a"  museum,"  which  he  desired  to  sell,   and   that  he 
employed  Steinbrecher  to  dispose  of  the  same,  agreeing  to  give  him 
10  per  cent  of  the  amount  realized  for  his  commission.     Steinbrecher 
sold  the  museum,  and  received  in  payment  six  notes  of  8600  each, 
payable  in  three  months,  a  year  and  three  months,  two  years  and 
three  months,  and  so  on.     The  sale  was  made  in  October,  1889,  and 
the  first  note  was  paid  in  January,  1890.     Out  of  this  note  Stein- 
brecher received  his  commission.     About  this  time  the  firm  of  which 
he  was  a  member  was  in   need  of  money,   and  he  tried  to   borrow 
from  plaintiff,  to  meet  some  firm  bills  which  were  then  coming  due. 
Buettner  had  no  money,  but  agreed  to  let  Steinbrecher  have  two  of 
the  "  museum  notes,"  whereupon   the  notes  were  indorsed  in  blank, 
and  delivered  to  Steinbrecher,  and  Steinbrecher  executed  the  note  of 
the  firm  to  plaintiff  for  $1,200.     Shortly  afterwards  Steinbrecher  came 
to  plaintiff,  and  stated  there  was  a  large  leather  bill  due,  and  that  he 
needed  more  money.     On  this  representation  he  secured  another  of 
the  museum  notes,  destroyed  the  firm  note  of  Si, 200,  and  executed  a 
new  one  in  the  name  of  the  partnership  for  81,800.     Afterwards  lie 
obtained  another,  and  then  another,  until  he  had  all  of  the  museum 
notes,  and  Buettner  held  the  note  of  the  firm  for  $3,000.     Payments 
on  and  renewals  of  this  $3,000  were  made  until  finally  the  note  in 
suit  remained.     Of  the  five  museum  notes,  one  was  deposited   in  the 
First  National  Bank  of  Burlington  as  collateral  to  two  notes  of  the 
partnership,  and  the  money  was  collected  and  paid  on  the  notes  of 


328  POWERS   OF   PARTNERS.  [CHAP.  IV. 

the  firm.  Three  of  them  were  deposited  with  the  Merchants'  National 
Bank,  placed  to  the  credit  of  defendant  firm,  and  checked  out  by 
them,  and  the  remaining  note  was  sold  by  Steinbrecher  to  one  E.  T. 
Dankwardt.  Steinbrecher  stated,  when  he  received  each  of  these 
notes,  that  he  wanted  them  to  pay  firm  bills  with.  We  do  not  over- 
look the  fact  that  Steinbrecher  testified  that  the  first  note  he  made 
was  in  his  individual  name,  and  that  he  afterwards,  in  making  re- 
newals, signed  the  name  of  the  firm  because  of  some  threat  of  the 
plaintiff,  and  that  the  money  received  on  these  notes  was  to  pay 
individual  bills ;  but  we  think  the  preponderance  of  the  testimony  is 
against  his  claim.  In  any  event,  the  trial  court  was  justified  in 
finding:  that  he  received  the  notes  for  the  firm,  and  used  the  most,  if 
not  all,  of  the  proceeds  in  paying  firm  debts;  and,  the  judgment  of 
the  court  standing  as  the  verdict  of  a  jury,  we  must  find  against  the 
defendants'  contention.  Steinbrecher  himself  testifies  that  a  great 
part  of  the  proceeds  of  the  notes  was  used  in  the  firm  business. 

2.  It  is  urged  that  the  borrowing  of  the  notes  was  not  within  the 
scope  of  the  partnership  business.  We  think  it  is.  In  Bates,  Partn. 
§372,  it  is  said:  "A  partner's  right  to  raise  money  for  the  firm 
extends  to  indorsing  notes  as  well  as  making  them,  or  to  borrow 
indorsements,  or  to  borrow  a  note  or  signature  in  accommodation,  or 
to  exchange  notes  or  acceptances,  or  borrow  securities."  See  also 
Gano  v.  Samuel,  14  Ohio,  592;  17  Am.  &  Eng.  Enc.  Law,  1017. 
Should  it  be  conceded,  however,  that  there  was  no  such  authority, 
the  court  might  well  have  found  that  the  defendant  Hertzler  ratified 
the  making  of  the  notes.  Steinbrecher  says  that  he  secured  the 
"  museum  notes,"  and  used  them  as  collateral  security  for  the  note  of 
the  firm,  of  which  Hertzler  knew;  that  Hertzler  allowed  him  to  do  so, 
because  he  was  sure  the  notes  would  be  paid  when  due,  and  he  was 
running  no  risk.  It  is  also  shown  that  the  proceeds  of  the  notes,  or 
at  least  a  large  portion  of  them,  were  used  for  partnership  purposes. 
"  Receiving  the  proceeds  of  a  bill  or  delay  in  disaffirming  it  will 
amount  to  a  ratification."  Rand.  Com.  Paper,  §  399 ;  Clark  v.  Hyman, 
55  Iowa,  14 ;  7  N.  W.  386.  We  think  the  court  was  justified  in  find- 
ing there  was  a  ratification  by  Hertzler  of  the  acts  of  Steinbrecher 
in  making  the  notes  in  the  name  of  the  firm.  .  .  . 

We  discover  no  prejudicial  error,  and  the  judgment  is  therefore 
affirmed. 


VETSCH   v.    NEISS  et  al. 

69  N.  W.  (Minn.)  315.     1896. 

Collins,  J.  Action  upon  a  promissory  note  alleged  to  have  been 
made  by  defendants,  as  co-partners.  The  plaintiff  was  an  indorsee 
after  maturity.     The  answering  defendant  admitted  the  existence  of 


§  2.]  POWER   TO   INCUR   A   FIRM    OBLIGATION.  329 

a  partnership  for  a  specified  purpose  between  the  defendants,  and  then 
alleged  that  the  note  was  executed  and  delivered  by  his  co-partner, 
without  his  knowledge  or  consent,  and  that  the  sole  and  only  con- 
sideration therefor  was  a  private  debt  due  from  such  partner  to  the 
payee  named  in  the  note.  These  were  the  issues  upon  which  the 
parties  went  to  trial ;  and,  at  the  conclusion  of  the  evidence,  the  court, 
upon  plaintiff's  motion,  instructed  the  jury  to  return  a  verdict  in  his 
favor.  Such  a  verdict  was  returned,  and  the  appeal  is  from  an  order 
denying  a  motion  for  a  new  trial. 

Several  assignments  of  error  are  urged  by  counsel,  mostly  relating 
to  the  rulings  of  the  court  when  receiving  testimony;  but  we  pass  all 
of  them,  and  come  directly  to  that  which  challenges  the  action  of  the 
court  when  directing  a  verdict  in  plaintiff's  favor.  The  evidence 
showed  conclusively  that  the  co-partnership  carried  on  the  business 
of  boring  wells,  buying  materials  for  pumps  and  windmills,  putting 
these  materials  together,  and  placing  these  articles  into  wells  bored 
by  the  firm,  or  already  bored  or  dug  by  other  persons.  Strictly 
speaking,  it  was  not  a  trading  partnership,  although  it  will  be  seen 
upon  an  examination  of  the  decisions  that  the  line  of  demarcation 
between  what  are  trading  and  what  are  non-trading  partnerships  is 
very  indefinite  and  indistinct. 

In  1  Bates,  Partn.  §  327,  the  author  states  that  trading  partner- 
ships are  frequently  called  commercial  or  mercantile  partnerships, 
but  that  these  terms  seem  to  be  somewhat  too  narrow,  for  often- 
times mechanical  and  manufacturing  partnerships  are  included 
among  trading  partnerships,  the  test  being  founded,  not  on  the 
nature  of  the  articles  they  deal  in,  but  the  character  of  their  deal- 
ings. Mr.  Bates  points  out  the  difficulty  in  the  application  of  any 
test  for  the  purpose  of  determining  with  absolute  certainty,  as  a 
question  of  law,  what  are  and  what  are  not  trading  partnerships, 
and  finally  concludes  that  if  the  partnership  contemplates  the  period- 
ical or  continuous  or  frequent  purchasing,  not  as  incidental  to  an 
occupation,  but  for  the  purpose  of  selling  again  the  thing  purchased, 
either  in  its  original  or  manufactured  state,  it  is  a  trading  partner- 
ship; otherwise,  it  is  not.  This,  as  a  general  statement,  is  un- 
doubtedly correct,  but  the  difficulty  lies  in  its  application,  as  will  be 
seen  by  an  examination  of  the  cases  cited  in  the  volume  referred  to 
(§§  328  and  329,  the  last  treating  particularly  of  non-trading  firms), 
all  of  the  cases  cited  being  partnerships  in  occupation;  and  in  some 
of  these  cases  the  difference  between  trading  and  non-trading  part- 
nerships seems  to  be  ignored,  the  single  test  of  scope  of  business 
being  adopted.  While,  on  the  authorities,  it  may  not  be  very  diffi- 
cult, in  many  cases,  to  hold,  as  a  matter  of  law,  that  the  scope  of  the 
business  carried  on  by  a  certain  firm  renders  it  a  trading  partnership, 
with  a  power  or  authority  resting  in  each  partner  to  borrow  money 
for  the  use  of  the  firm,  and  to  execute  and  deliver  negotiable  paper 
therefor,  or  to  hold,  as  a  matter  of  law,  that  the  firm  business  con- 


330  POWERS    OF   PARTNERS.  [CHAP.  IV. 

stitutes  it  nothing  but  a  non-trading  partnership,  in  which  the  part- 
ners have,  prima  facie,  no  authority  to  borrow  money,  or  to  bind  the 
concern  by  a  promissory  note,  there  are  many  partnerships  concern- 
ing which  no  rule  of  law  as  to  the  implied  powers  of  the  partners 
with  respect  to  firm  notes  can  be  applied  with  safety.  In  these  cases 
the  authority  of  either  partner  in  this  respect  must  be  determined  as 
a  question  of  fact,  depending  upon  circumstances  peculiar  to  each. 

Certain  it  is,  from  the  nature  of  the  business  conducted  by  defend- 
ant firm,  that  the  court  below  could  not  hold,  as  a  matter  of  law,  that 
it  was  a  trading  partnership,  and  hence  that  each  partner  had  implied 
authority  to  borrow  money  for  its  use,  and  to  execute  and  deliver  a 
firm  note  for  the  same. 

The  evidence  conclusively  showed  that  the  note  in  suit  was  given 
for  money  borrowed  to  pay  a  firm  debt,  incurred  for  labor  performed 
for  the  firm,  and  in  its  legitimate  business,  and  that  the  money  so 
obtained  was  used  by  the  partner  who  made  the  note  in  payment  of 
this  indebtedness.  But,  when  the  partnership  is  strictly  non-trading, 
it  can  make  no  difference  that  the  money  was  actually  used  for  its 
benefit.  1  Bates,  Partn.  §  343,  and  citations.  The  question  is  one 
of  authority  to  execute  the  note,  not  as  to  what  became  of  the  pro- 
ceeds, or  for  whose  benefit  they  were  used.  But  in  cases  where  the 
court  cannot  say,  as  a  matter  of  law,  that  the  firm  is  either  a  trading 
or  a  non-trading  partnership,  and  that  each  member  has  or  has  not  the 
power  to  bind  the  firm  by  the  issuance  of  negotiable  paper,  the  test 
seems  to  be  whether  the  issuing  of  such  paper  is  essential  to  carry 
into  effect  the  ordinary  purpose  for  which  the  partnership  was  formed. 
Id.  And,  of  course,  the  fact  that  the  firm  derived  the  benefit  of  the 
act  may  be  taken  into  consideration  when  applying  this  test. 

The  liability  of  one  partner  upon  promissory  notes  and  other  con- 
tracts made  by  a  co-partner,  without  his  actual  knowledge  or  assent, 
is  a  question  of  agency;  and  the  law  applicable  to  the  case  now 
before  us  is  concisely  stated  in  Irwin  v.  Williar,  110  U.  S.  499,  thus: 
"  If  the  contract  of  partnership  is  silent,  or  the  party  with  whom  the 
dealing  has  taken  place  has  no  notice  of  its  limitations,  the  authority 
for  each  transaction  may  be  implied  from  the  nature  of  the  business, 
according  to  the  usual  and  ordinary  course  in  which  it  is  carried  on 
by  those  engaged  in  it,  in  the  locality  which  is  its  seat,  or  as  reason- 
ably necessary  or  fit  for  its  successful  prosecution.  If  it  cannot  be 
found  in  that,  it  may  still  be  inferred  from  the  actual,  though  excep- 
tional, course  and  conduct  of  the  business  of  the  partnership  itself, 
as  personally  carried  on,  with  the  knowledge,  actual  or  presumed,  of 
the  partner  sought  to  be  charged."  And  the  learned  justice  who 
wrote  the  opinion  proceeds  to  say:  "  "What  the  nature  of  that  busi- 
ness in  each  case  is,  what  is  necessary  and  proper  to  its  successful 
prosecution,  what  is  involved  in  the  usual  and  ordinary  course  of  its 
management  by  those  engaged  in  it,  at  the  place  and  time  where  it 
is  carried  on,  are  all  questions  of  fact,  to  be  decided  by  the  jury, 


£  2.]  POWElt    TO    INCUB   A   FIRM   OBLIGATION.  '    331 

from  a  consideration  of  all  the  circumstances  which,  singly  or  in 
combination,  affect  its  character,  or  determine  its  peculiarities;  and 
from  them  all,  giving  to  each  its  due  weight,  il  is  its  province  to 
ascertain  and  say  whether  the  transaction  in  question  is  one  which 
those  dealing  with  the  linn  had  reason  to  believe  was  authorized  by 
all  of  its  members."     See  also  Dowling  v.  Bank,  1  to  U.  S.  .">12. 

The  court  erred  in  holding,  as  a  matter  of  law,  that,  upon  any  view 
of  the  facts,  the  jury  could  not  find  for  the  defendant  who  answered. 
We  have  not  alluded  to  the  testimony  introduced  by  plaintiff  which 
tended  to  show  that  the  defendant  just  referred  to  knew  that  his  part- 
ner was  to  borrow  the  money  from  the  payee  of  the  note,  and  to  make 
the  note  in  suit,  for  such  knowledge  was  denied.  It  is  hardly  neces- 
sary to  say  that  if  the  jury  found  that  he  was  advised  that  the  money 
was  to  be  borrowed,  and  the  note  given,  and  assented  to  it,  either 
actually  or  by  implication,  a  verdict  in  plaintiff's  favor  could  be 
sustained  on  this  fact  alone. 

Order  reversed,  and  new  tried  granted. 


CONGDON   v.    OLDS  et  al. 

18  Mont.  487:    46  Pac.  261.     1896. 

The  plaintiff  and  the  defendant  Olds  together  signed  a  promissory 
note  payable  to  the  Silver  Bow  National  Bank  of  Butte.  After 
renewals  of  the  note,  the  plaintiff  was  obliged  to  pay  the  same.  He 
then  brought  this  action  against  all  these  defendants.  The  reason 
for  joining  these  defendants  other  than  Olds  was  that  plaintiff 
claimed,  and  so  alleged  in  his  complaint,  that,  when  the  note  was 
signed,  the  defendant  Olds,  together  with  defendants  Hoffman, 
Northrup,  Cox,  Kountz,  Whitefoot,  Ferris,  Cooper,  and  Hartman, 
constituted  a  partnership,  which  partnership  was  engaged  in  the 
business  of  operating  the  Kittie  Morris  Mine,  and  that  the  partner- 
ship was  carried  on  in  the  firm  name  of  L.  B.  Olds,  and  that  the 
signature  of  L.  B.  Olds  on  the  note  in  question  was  not  the  individual 
signature  of  Mr.  L.  B.  Olds,  but  was  the  signature  of  said  partner- 
ship. Upon  this  theory  the  case  was  tried.  The  plaintiff  recovered 
judgment,  The  defendant  Olds  did  not  appear  upon  the  trial,  and 
the  case  proceeded  as  against  the  defendants  other  than  him.  Those 
defendants  now  appeal  from  the  judgment,  and  from  the  order  deny- 
ing a  new  trial. 

Hartman  Bros.  &  Stewart  and  Smith  &  Word,  for  appellants. 

/*'.   7'.  Mr  r,  ride,  for  respondent. 

De  Witt,  J.  There  are  three  alleged  errors  complained  of,  of 
which  we  shall  treat.  The  first  is  the  action  of  the  court  in  treating 
the  partnership  as  a  general  or  trading  partnership.  This  matter 
arose  in  several  ways  upon  the  trial,  and  in  the  giving  of  the  instruc 


332  POWERS    OF   PARTNERS.  [CHAP.  IV. 

tions.  It  is  not  necessary  to  follow  this  error  into  every  place  where 
it  occurred.  It  is  sufficient  to  treat  it  as  it  occurred  in  instruction 
No.  3,  which  the  court  gave.  That  instruction  is  as  follows:  "  The 
court  instructs  the  jury  that  where  several  parties  associate  them- 
selves together  for  the  purpose  of  carrying  on  a  business,  and 
mutually  agree  to  contribute  funds  for,  and  to  bear  losses  and  share 
the  profits  of,  the  business,  that  such  an  association  constitutes  a 
general  partnership,  and  it  is  immaterial  whether  the  busiuess  to  be 
engaged  in  is  mining  or  other  business ;  and  in  such  cases  each  part- 
ner becomes  the  agent  of  the  partnership  for  the  purpose  of  the  . 
partnership." 

The  appellants  complain  that  by  this  instruction  the  court  treated 
the  partnership  of  the  defendants  as  absolutely  a  general  or  trading 
partnership,  and  excluded  from  consideration  the  question  of  whether 
the  defendants  were  a  mining  partnership.  They  contend  that  the 
court  proceeded  upon  the  theory  that  there  was  no  such  thing  as  a 
mining  partnership  in  this  State  prior  to  the  enactment  of  the  Civil 
Code  of  July  1,  1895  (section  3350  et  seq.).  If  this  were  the  case, 
it  was  error,  for  mining  partnerships,  differing  from  general  partner- 
ships, have  been  recognized  in  the  decisions  of  this  court  as  exist- 
ing in  this  State  for  many  years.  Nolan  v.  Lovelock,  1  Mont.  227; 
Boucher  v.  Mulverhill,  Id.  306;  Hirbour  v.  Reeding,  3  Mont.  15; 
Southmayd  v.  Southmayd,  4  Mont.  112;  Galigher  v.  Lockhart,  11 
Mont.  113;  Harris  v.  Lloyd,  11  Mont.  406;  Anaconda  Copper  Min. 
Co.  v.  Butte  &  B.  Min.  Co.,  17  Mont.  523. 

Respondent  also  contends  that  the  court  properly  gave  this  instruc- 
tion, for  the  reason  that  it  appears  from  the  evidence  that  there  was 
no  mining  partnership  in  this  case.  We  think  that  there  was  evi- 
dence tending,  at  least,  to  show  that  the  partnership  in  question  was 
a  mining  one,  and  not  a  general  one.  But  the  court  instructed  the 
jury,  in  No.  3,  quoted,  that  if  parties  associate  themselves  together 
for  the  purpose  of  carrying  on  a  business,  and  agree  to  contribute 
funds,  pay  losses,  and  share  profits,  such  an  association  is  a  general 
partnership,  without  regard  to  whether  the  business  is  mining  or  not. 
We  are  of  opinion  that  this  was  not  correct,  for,  while  these  elements 
recited  are  those  of  a  general  partnership,  they  are  certainly  also  ele- 
ments of  a  mining  partnership.  In  every  partnership  the  parties 
associating  themselves  together  contribute  funds  and  share  losses 
and  profits.  One  partner  may  make  his  contribution  in  money,  and 
another  may  make  it  in  labor  or  in  furnishing  the  mining  premises 
to  the  partnership.  One  may  bear  the  loss  of  money  that  he  puts  in; 
another  may  bear  the  loss  of  his  time  and  labor  which  he  contributes. 
We  cannot  imagine  a  mining  partnership  in  which  the  parties  do  not 
share  losses  and  profits.  Certainly,  no  one  will  enter  a  mining  part- 
nership with  the  agreement  that  he  shall  pajT  all  the  losses,  nor  with 
the  agreement  that  his  partner  shall  receive  all  the  profits.  The  facts 
recited  in  instruction  No.  3  may  be  these  of  a  general  partnership, 


S  2.]  POWER    TO    INCUR    A   FIRM    OBLIGATION.  333 

but  they  are  also  part  of  the  facts  existing  iu  a  mining  partnership; 
and  it  was  error  to  hold  absolutely  that  those  facts  constitute  a  gen- 
eral partnership  only.  It  is  true  that  a  general  partnership  may  exist 
if  the  contract  between  the  parties  is  to  that  effect,  even  if  the  busi- 
ness of  the  partnership  is  solely  in  mines.  Duryea  v.  Burt,  28  Cal. 
574;  Settembre  v.  Putnam,  30  Cal.  4(J0;  Decker  v.  Howell,  42  Cal. 
636.  It  is  held  in  Decker  v.  Howell,  supra,  that  an  agreement  to 
share  profits  and  losses  equally  tends  to  prove  the  existence  of  an 
ordinary  partnership,  instead  of  a  mining  partnership;  but  it  is  not 
there  held  that  simply  the  sharing  of  losses  and  profits  in  itself  con- 
stitutes absolutely  a  general  partnership.  The  distinction  between  a 
general  or  trading  partnership  and  a  non-trading  partnership  is  recog- 
nized, not  only  in  the  mining  States,  where  mining  partnerships  are 
frequent,  but  in  other  jurisdictions  where  non-trading  partnerships 
other  than  mining  ones  are  of  frequent  occurrence.  Many  of  the 
rules  of  general  partnerships  obtain  in  mining  partnerships,  but  the 
latter  have  other  rules  peculiar  to  themselves.  Some  of  the  great 
distinctions  between  a  general  partnership  and  a  mining  partnership 
are  the  questions  of  the  delectus  perso?iarum,  and  the  authority  of 
one  partner  to  bind  the  firm  by  the  issuance  of  commercial  paper  of 
the  firm.  As  to  joint  owners  operating  a  mine,  it  is  said  in  Skillman 
v.  Lachman,  23  Cal.,  at  page  204:  "They  form  what  is  termed  a 
'  mining  partnership,'  which  is  governed  by  many  of  the  rules  relat- 
ing to  ordinary  partnerships,  but  which  has  also  some  rules  peculiar 
to  itself,  one  of  which  is  that  one  person  may  convey  his  interest  in 
the  mine  and  business,  without  dissolving  the  partnership.  Fereday 
v.  Wightwick,  1  Russ.  &  M.  49.  Still,  there  may  be  a  partnership 
in  the  working  of  a  mine  subject  to  the  rules  relating  to  an  ordinary 
partnership  in  trade.  Story,  Partn.  §  82.  And  this  relation  of  part- 
nership may  be  constituted  either  by  express  stipulation  or  by  impli- 
cation deduced  from  the  acts  of  the  parties.  Rock.  Mines,  575.  But 
in  the  case  of  an  ordinary  mining  partnership  something  more  will 
be  required  to  raise  the  presumption  of  liability  arising  from  persons 
holding  themselves  out  to  the  world  as  partners  than  would  be  neces- 
sary in  the  case  of  an  ordinary  partnership.  Such  persons,  in  the 
absence  of  other  circumstances,  cannot  fairly  be  presumed  to  have 
intended  to  render  themselves  liable  to  all  the  consequences  of  a 
commercial  partnership." 

Mr.  Justice  Field  said,  in  Kahn  v.  Smelting  Co.,  102  U.  S.  645: 
"  Mining  partnerships,  as  distinct  associations,  with  different  rights 
and  liabilities  attaching  to  their  members  from  those  attaching  to 
members  of  ordinary  trading  partnerships,  exist  in  all  mining  com- 
munities. Indeed,  without  them  successful  mining  would  be  at- 
tended with  difficulties  and  embarrassments  much  greater  than  at 
present." 

The  learned  justice  then  quotes  with  approval  Skillman?'.  Lachman, 
above  quoted.     See  also  Quinn  v.  Quinn,  81  Cal.  14;  McConnell  v. 


>> 


34  POWERS   OF   PARTNERS.  [CHAP.  IV. 


Denver,  35  Cal.  365;  Jones  v.  Clark,  42  Cal.  180;  Charles  v.  Eshle- 
man,  5  Colo.  107;  Higgins  v.  Armstrong,  9  Colo.  38;  Judge  v. 
Braswell,  13  Bush,  67;  Manville  v.  Parks,  7  Colo.  128;  Deardorf's 
Adm'r  v.  Thatcher,  78  Mo.  128;  Pease  v.  Cole,  53  Conn.  53;  Bissell 
v.  Foss,  114  U.  S.  252;  Bates,  Partn.  §  163;  also,  Id.  §§  14,  329, 
with  cases  cited;  Pars.  Partn.  §  37,  with  note;  §  306,  with  note  and 
§  85,  and  cases  cited. 

We  are  therefore  of  opinion  that  the  court,  in  giving  instruction 
No.  3,  was  in  error,  for  the  reason  that  the  elements  of  a  partnership 
there  recited  do  not  in  themselves  absolutely  constitute  a  general 
partnership.  .   .  .  Reversed. 


In   re   MARY   AND   BENJAMIN   IRVING. 

17  Nat.  Bankruptcy  Reg.  22.     1877. 

E.  T.  Felloies,  for  the  assignee. 

W.  F.  /Scott,  for  the  creditor. 

Blatchford,  J.  The  notes  in  question  being  made  by  Wise  and 
indorsed  by  Irving  &  Son,  and  taken  bj*  Wise  to  E.  F.  Mead  to  be 
discounted,  and  the  money  for  them  being  given  by  Mead  to  Wise,  the 
transaction  showed  on  its  face  that  the  indorsements  were  only  accom- 
modation indorsements.  E.  F.  Mead,  and  L.  Mead  through  him,  were, 
therefore,  chargeable  with  notice  that  Irving  &  Son  were  only  sureties 
for  Wise,  and  that  the  notes  had  not  passed  through  the  hands  of 
Irving  &  Son  in  the  ordinary  course  of  their  co-partnership  business ; 
and,  if  Mary  Irving  did  not  consent  to  the  making  of  the  indorsements, 
she  is  not  liable  on  the  notes.  Is  there  anything  to  repel  the  presump- 
tion which  arises  from  the  face  of  the  transaction  ?  It  is  for  the  cred- 
itor to  show  affirmatively  sufficient  to  rebut  the  presumption.  It  is 
entirely  clear  that  Mary  Irving  knew  nothing  of  the  indorsements,  and 
did  not  consent  to  the  making  of  them. 

It  is  not  shown  satisfactorily  that  the  indorsements  were  in  any 
way  for  the  benefit  of  Irving  &  Son,  as  a  firm,  or  that  any  of  the 
money  paid  for  the  notes  was  applied  to  the  purposes  of  the  firm  or 
went  into  the  hands  of  the  firm.  In  view  of  the  conflicting  evidence  of 
E.  F.  Mead  and  Charles  Irving  it  cannot  be  regarded  as  established 
that  E.  F.  Mead,  or  L.  Mead  through  him,  had  any  information  before 
taking  the  notes  and  paying  the  money  for  them,  that  the  notes  or  the 
indorsements  were  for  the  benefit,  to  any  extent,  of  the  firm  of  Irving 
&  Son. 

There  is  no  doubt  that  E.  F.  Mead  and  L.  Mead  required  the  indorse- 
ment of  Irving  &  Son  before  they  would  take  the  notes.  But  that  is  not 
sufficient.  I  cannot  concur  with  the  register  in  his  finding  that  these 
notes  were  regularly  indorsed  by  Irving  &  Son  in  accordance  with  the 
business  transactions  between  them  and  Wise. 


§2-] 


POWER   TO   INCUR   A   FIRM   OBLIGATION.  335 


On  the  contrary,  it  distinctly  appears  that  this  was  the  first  occasion 
on  which  Benjamin  II.  Irving  had  indorsed  with  the  firm  name  any 
note  made  by  Wise. 

The  proof  of  debt  by  L.  Mead  against  the  firm  must  be  expunged. 


NOYES    et   al.    v.    CRANDALL   et   al. 
G  S.  D.  4G0:  01  X.  W.  6UG.     16'Jo. 

Fuller,  J.  In  the  village  of  Hartford,  on  the  20th  day  of  February, 
1893,  the  defendants  were,  and  for  a  few  months  prior  thereto  had  been, 
en^a^ed  in  the  banking  business  as  co-partners,  under  the  firm  name 
and  style  of  Merchants'  Bank  of  Hartford,  and  during  all  such  time  F. 
S.  McAllister,  the  cashier  of  said  bank,  was  carrying  on  a  retail  drug 
business  in  the  same  town,  under  the  firm  name  of  F.  S.  McAllister  & 
Co.  On  the  above-mentioned  date  the  following  bill  of  exchange  was 
drawn  by  the  Bank  of  Hartford  on  its  correspondent,  the  Merchants' 
Bank  at  Sioux  Falls,  of  which  the  defendant  Crandall  was  at  the  time 
president :  "  Merchants'  Bank  of  Hartford.  No.  486.  Hartford,  S.  D., 
Feb.  20,  1893.  Pay  to  the  order  of  F.  S.  McAllister,  or  order,  $800.00 
(eight hundred  dollars).  Duplicate  unpaid.  F.  S.  McAllister,  Cashier. 
To  Merchants'  Bank,  Sioux  Falls." 

Plaintiffs  are  a  co-partnership  engaged  in  the  wholesale  drug  business 
at  the  city  of  St.  Paul,  and  during  all  the  time  F.  S.  McAllister  was 
cashier  of  the  Merchants'  Bank  of  Hartford,  and  for  more  than  a  year 
prior  thereto,  he  had  been  and  was  a  customer  of  plaintiffs,  and  fre- 
quently made  remittances  to  them  for  goods  purchased  for  the  purposes 
of  his  retail  drug  trade  in  the  village  of  Hartford.  While  defendants 
were  operating  their  bank,  and  prior  to  the  25th  day  of  February,  1893, 
numerous  drafts  of  the  Merchants'  Bank  of  Hartford  on  the  Merchants' 
Bank  at  Sioux  Falls,  payable  to  the  order  of  plaintiffs,  and  signed  "  F 
S.  McAllister,  Cashier."  were  sent  by  McAllister  in  payment  for  goods, 
and  were  all  honored  by  said  correspondent  as  soon  as  presented.  On 
the  day  and  date  last  above  mentioned,  and  at  the  request  of  defendant 
McAllister,  made  in  person  at  the  office  of  plaintiffs,  in  the  city  of  St. 
Paul,  he  received  from  plaintiffs  $539.87  in  cash  and  a  credit  of  $260.13 
on  account,  and  indorsed  and  transferred  to  them  in  consideration 
therefor  the  above-mentioned  bill  of  exchange,  which  was  presented 
and  protested  for  non-payment  three  days  thereafter,  and  this  action 
was  instituted  by  plaintiffs  to  recover  from  the  defendants  the  amount 
of  said  draft,  together  with  protest  charges  and  the  costs  of  the  suit. 
There  being  no  service  of  the  summons  upon  defendant  McAllister,  the 
action  proceeded  against  the  defendant  Crandall,  and  at  the  conclusion 
Of  plaintiffs'  evidence  a  verdict  on  motion  was  directed  in  favor  of  the 
defendant  served  and  against  the  plaintiffs  for  costs.     From  a  judgment 


336  POWEES   OF   PARTNERS.  [CHAP.  IV. 

entered  thereon,  and  from  an  order  overruling  a  motion  for  a  new  trial, 
plaintiffs  appeal. 

With  great  confidence  counsel  for  respondents  maintain  that  a  draft 
drawn  by  a  cashier  to  his  own  order  is  not  negotiable,  that  a  purchaser 
thereof  for  value  is  not  an  innocent  holder  without  notice,  and  that  the 
same  is  utterly  void  as  against  the  bank.  As  no  evidence  was  offered 
on  the  part  of  defendants,  and  in  the  absence  of  anything  in  the  record 
tending  to  show  that  the  draft  was  not  in  fact  paid  for  bj'or  charged  to 
the  account  of  the  cashier  at  the  time  he  drew  the  same,  the  foregoing 
position  must  be  justified  in  order  to  sustain  the  judgment  from  which 
the  appeal  is  taken.  The  trial  court  excluded  and  withheld  from  the 
jury  the  evidence  of  numerous,  persons  of  extensive  experience  in  the 
banking  business,  both  in  this  State  and  in  the  monetary  centres  of 
other  States,  who  testified,  in  effect,  that  it  was,  under  certain  circum- 
stances, usual  and  customary  for  cashiers  to  make  drafts  like  the  one 
in  suit  to  their  own  order  upon  correspondent  banks,  and  that  such 
drafts  are  received  by  bankers  without  hesitation  on  that  account,  and 
are  treated  in  the  course  of  business  as  current  funds  ;  and  the  rulings 
of  the  learned  court  upon  the  offer  of  this  evidence  are  assigned 
as  error. 

If  a  partnership  created  for  and  engaged  in  the  banking  business 
appoints,  designates,  and  holds  out  to  the  world  a  member  thereof  as 
cashier,  it  thereby  authorizes  such  person  to  transact  on  its  behalf  all 
business  within  the  inherent  powers  of  a  bank  cashier ;  but,  in  order  to 
ascertain  the  scope  and  extent  of  his  authority  to  bind  his  bank,  we 
must  look  to  and  be  governed  b}'  the  law  and  the  decisions  in  deter- 
mining whether  a  particular  act  has  received  judicial  sanction,  and  is 
justified  and  sustained  by  the  courts.  That  the  draft  was  made  payable 
to  the  individual  who  signed  it  as  cashier,  though  sufficient  to  put  third 
persons  upon  inquiry,  and  raise  a  presumption  that  he  was  attempting 
to  appropriate  to  his  private  use  money  belonging  to  the  bank,  might 
not  be  sufficient  to  relieve  defendant  Crandall  from  all  liability  in  case 
it  should  clearly  appear  that  he  had  authorized  McAllister  to  pay  his 
individual  debts  to  the  plaintiffs  out  of  the  funds  of  the  bank,  or  had 
sanctioned  such  conduct  by  habitually  and  knowingly  permitting  him 
to  make  drafts  from  time  to  time  to  their  order,  and  for  that  purpose, 
upon  the  Merchants'  Bank  at  Sioux  Falls,  of  which  bank  said  Crandall 
was  president,  and  by  which  bank  such  drafts  were  promptly  honored 
when  presented  for  payment ;  and  thus  the  question  might  become  one 
of  fact  as  well  as  of  form. 

It  appears  from  the  evidence  that  plaintiffs  knew  that  McAllister  was 
cashier  of  the  Merchants'  Bank  of  Hartford,  and  that  he  had  frequently 
made  remittances  to  them  for  goods  which  he  had  purchased  by  drafts 
issued  by  the  Merchants'  Bank  of  Hartford  to  the  Merchants'  Bank  of 
Sioux  Falls,  signed  "  F.  S.  McAllister,  Cashier,"  and  that  such  drafts 
were  in  every  instance  promptly  honored  when  presented  for  payment. 
If  plaintiffs  then  knew,  or,  under  the  circumstances,  ought  to  have 


S  2.1  POWER   TO   INCUR   A    FIRM    OBLIGATION.  337 

known,  that  by  using  his  official  character  McAllister  was  paying  his 
personal  obligations  out  of  the  funds  of  the  bank  deposited  with  the 
Merchants'  Bank  at  Sioux  Falls,  the  fact  that  the  drafts  were  made  by 
McAllister  payable  to  their  order,  instead  of  being  made  to  his  own 
order,  and  indorsed  over  to  plaintiffs,  would  not  be  material.  If  they 
were  made  for  his  own  personal  use,  without  authority,  their  payment 
in  either  case  could  be  enforced  ;  and,  as  the  drafts  so  drawn,  paid,  and 
cancelled  were  in  the  possession  of  the  defendant  Crandall,  who  pro- 
duced and  offered  them  in  evidence  at  the  trial  in  obedience  to  an  order 
of  court,  we  are  disposed  to  believe  that  such  evidence,  together  with 
other  facts  and  circumstances  bearing  upon  the  question  of  authoriza- 
tion, should  have  been  submitted  to  the  jury  for  its  determination. 

Mr.  Morse,  in  the  first  volume  of  his  treatise  on  Banks  and  Banking, 
at  page  98,  says :  "  If  A.  openly  and  for  a  long  time  does  certain 
things  without  special  authority,  and  there  is  no  objection  from  the 
directors,  C.  properly  infers  A.'s  authority;  for,  if  the  directors  knew 
of  A.'s  conduct,  it  is  a  clear  case  of  estoppel,  and,  if  this  action  was  so 
open  and  long-continued  that  they  would  have  known  of  it  by  reason- 
able diligence,  the  bank  cannot  take  advantage  of  the  neglect  of  its 
agents  in  their  duty  as  against  one  misled  and  injured  thereby."  In 
An  lerson  v.  Kissam,  35  Fed.  699,  cited  by  respondents'  counsel  as  a 
case  in  point,  the  court  says  :  "  The  facts  in  evidence  certainly  justified 
the  submission  of  the  question  to  the  jury  whether  the  defendants  did 
not  have  notice  that  Warner  was  availing  himself  of  fiduciary  powers 
to  use  the  funds  of  the  corporation  for  unauthorized  purposes.  As  the 
checks  were  made  payable  to  the  order  of  the  defendants  for  Warner's 
individual  use,  in  legal  effect  they  were  made  payable  to  Warner's  own 
order.  The  defendants  knew  that  he  was  not  acting  within  the  scope 
of  any  ordinary  agency  when  he  made  checks  officially  for  use  in  his 
private  transactions." 

A  course  of  dealing  between  McAllister  and  the  plaintiffs  through 
the  bank  owned  by  Crandall  and  himself  might  be  of  such  a  character 
as  to  establish  an  obligation  on  the  part  of  the  partnership  to  pay  the 
draft  in  suit,  and,  conceding  that  its  recitals  w we  prima  facie  sufficient 
to  raise  a  presumption  that  he  was  attempting  to  defraud  his  co-partner, 
such  presumption  would  not  be  conclusive,  and  plaintiffs  would  be 
entitled  to  prove  that  McAllister  was  in  fact  authorized  to  make  the 
draft  as  he  did,  or  that  he  had  in  fact  paid  for  the  same  at  the  time  it 
was  drawn.  1  Morse,  Banks,  27;  Ilotchkiss  v.  Bank,  42  Barb.  517; 
Rutledge  y.  Squires,  2:3  Iowa,  53  ;  Hickman  v.  Kunkle,  27  Mo.  401  ; 
1  Lindl.  Partn.  171.  The  case  of  Anderson  v.  Kissam,  supra,  to 
which  counsel  for  respondents  direct  our  attention,  has  been  carefully 
examined.  In  that  case  defendants  knew  that  the  numerous  checks 
drawn  by  the  cashier  in  his  official  capacity  upon  the  correspondents  of 
his  bank  were  so  drawn  for  his  personal  use,  and  as  defendants  drew 
the  money  on  their  checks,  and  used  it  for  the  cashier  in  his  specula- 
tions upon  Wall  Street,  the  court  held,  in  an  action  against  the  defend- 

22 


338  POWERS    OF   PARTNERS.  [CHAP.  IV. 

ants  by  a  receiver  of  the  cashier's  bank,  brought  to  recover  such 
money,  that  it  was  proper  for  the  jury  to  ascertain  from  the  evidence 
whether  the  directors  of  the  bank  were  ignorant  of  the  fact  that  the 
cashier  was  so  using  the  funds  of  the  bank,  and  that  the  juiy  was  fully 
warranted  in  finding  that  the  directors  of  the  bank  were  entirely  igno- 
rant of  the  cashier's  acts,  and  that  defendants  knew,  or  had  reason  to 
believe,  when  the}7  took  the  checks,  that  the  cashier  was  not  authorized 
by  his  co-managers  to  make  them.  These  facts,  together  with  other 
circumstances  offered  on  the  part  of  the  defendants,  and  bearing  upon 
the  question  of  the  knowledge  of  the  directors  and  the  authority  of  the 
cashier  to  speculate  on  his  own  behalf  with  the  funds  of  the  bank, 
having  been  submitted  to  the  jury,  and  found  adversely  to  the  defend- 
ants, the  court,  on  appeal,  sustained  an  order  denying  a  motion  for  a 

new  trial. 

While  the  fact  that  the  draft  in  suit,  viewed  in  the  light  of  the  law, 
raises  a  presumption  that  it  was  drawn  without  authority,  we  think 
there  were  facts  and  circumstances  in  evidence  tending  to  overcome 
this  presumption,  and  bearing  upon  the  question  of  knowledge  and 
acquiescence  on  the  part  of  defendant  Crandall,  which  were  sufficient 
to  go  to  the  jury  under  proper  instructions  relating  to  the  subject  of 

authority. 

The  judgment  is  therefore  reversed,  and  a  new  trial  is  ordered. 


DAVIS   v.  DODSON   et  al. 

95  Ga.  718:  22  S.  E.  615.     1895. 

Lumpkin,  J.  The  plaintiff  below,  Davis,  as  executor  of  Hall,  sued 
out  an  attachment  against  Dodson  &  Moon,  a  non-resident  firm  of 
attorneys  at  law,  which  attachment  was  levied  upon  land  in  Walker 
County  as  the  property  of  Moon,  one  of  the  defendants.  The  case 
made  by  the  declaration  in  attachment  as  amended  was,  in  substance, 

as  follows  : 

The  defendants,  as  attorneys  at  law,  received  for  collection  from  the 
plaintiff's  testator  a  promissory  note,  at  the  same  time  giving  him  a 
receipt  in  the  following  words:  "  Chattanooga,  Tenn.,  Dec.  23,  1886. 
Eeceived  of  S.  P.  Hall  a  note  on  Larkin  Payne,  payable  to  E.  M. 
Dodson,  and  indorsed  by  him,  for  fifteen  hundred  dollars,  dated  the  7th 
day  of  March,  1886,  and  due  twelve  months  after  date,  with  interest  at 
the  rate  of  seven  per  cent  per  annum  from  date,  and  secured  by  a  deed 
of  trust  on  two  hundred  and  thirty  acres  of  land,  the  home  place  of  said 
Payne,  made  to  said  Dodson  as  trustee,  with  power  of  sale.  If  said 
note  is  not  paid  at  maturity  we  agree  to  foreclose  the  deed  of  trust  by 
the  first  Tuesday  in  May,  1887,  free  of  cost  to  Mr.  Hall,  and  not  to 
charge  him  any  fees,  this  being  the  agreement  under  which   he  pur- 


?  2.1  POWER    TO    INCUR   A   FIRM    OBLIGATION.  339 

chased  said  note  and  deed  of  trust.  Dodson  &  Moon,  Attys.  at  law. 
The  money  due  upon  the  note  specified  in  the  foregoing  receipt  was 
collected  by  the  defendants,  who  failed  and  refused  to  pay  the  same 
over  to  the  plaintiff." 

The  defendant  Moon  pleaded,  in  substance,  that  he  did  not  sign  the 
receipt ;  that  it  was  not  signed  by  any  one  authorized  by  him  ;  that 
neither  he  nor  the  firm  of  Dodson  &  Moon,  as  such,  ever  had  the 
possession,  custody,  or  control,  for  collection  or  otherwise,  of  any  such 
note  or  paper  as  was  described  in  this  receipt ;  nor  did  he  or  his  firm, 
at  any  time  or  in  any  manner,  collect  or  receive  any  money  thereon, 
either  as  attorneys  at  law  or  otherwise  ;  but  that  the  giving  of  the  re- 
ceipt was  the  individual  act  of  Dodson,  for  which  neither  Moon  nor  the 
firm  was  in  any  manner  responsible. 

At  the  trial  the  plaintiff  offered  evidence  to  show  that  the  receipt  in 
question  was  signed  by  Dodson  in  the  name  of  his  firm,  and  that  he 
afterwards  collected  the  money  due  on  the  note,  giving  therefor  receipts 
signed  by  him  individually,  and  had  failed  to  account  for  the  money 
collected.  Xo  evidence  whatever  was  introduced  to  show  that  Moon 
ever  had  any  knowledge  of  the  transaction,  or  had  ever  ratified  the 
giving  of  the  receipt  to  Hall.  Nor  was  it  shown  that  Moon  ever  had 
personal  possession  of  the  note,  or  recognized  its  possession  by  his 
firm,  or  that  he  took  part  in  or  knew  of  its  collection  by  Dodson.  On 
the  contrary,  as  the  receipt  itself  would  seem  to  indicate,  the  truth  of 
the  matter  probably  was  that  Dodson  traded  to  Hall  a  note  payable  to 
himself,  and  which  he  held  in  his  individual  capacity;  and,  as  an 
inducement  to  Hall  to  purchase  the  same,  undertook  by  the  receipt  to 
bind  the  firm  of  Dodson  &  Moon  to  collect  the  note  free  of  charge.  If 
the  effect  of  giving  the  receipt  was  to  obligate  that  firm  to  perform  the 
service  indicated,  it  is  obvious  that  it  would  make  no  difference  that 
Moon  never  took  any  active  part  in,  or  even  knew  of,  the  collection 
and  misapplication  of  the  money  due  on  the  note,  for  he  would  be 
responsible  and  liable  for  every  act  of  Dodson  while  acting  within  the 
scope  of  his  authority  as  a  member  of  the  partnership.  Therefore  the 
question  presents  itself  whether  Dodson,  by  virtue  of  his  general 
authority  to  represent  his  firm,  could,  in  a  transaction  such  as  that 
disclosed  by  the  record  now  before  us,  make  a  contract  binding  alike 
upon  his  partner  and  himself  as  composing  the  firm  of  Dodson  & 
Moon. 

We  do  not  see  how  it  can  be  seriously  contended  that  it  is  within  the 
.scope  of  the  authority  of  one  member  of  a  partnership,  in  a  private 
transaction  between  himself  and  another,  and  in  consideration  of  a 
benefit  bestowed  upon  himself  alone  and  not  shared  in  by  his  partner, 
to  undertake  to  bind  his  firm  to  any  agreement  whatsoever.  In  a 
transaction  of  this  kind,  he  would  be  acting  solely  in  his  individual 
capacity,  and  not  as  a  member  of  his  firm.  We  had  thought  it  a  very 
universally  recognized  fact  that  lawyers  are  in  the  habit  of  charging 
their  clients  for  services,  and  that  the  main  object  of  forming   law 


340  POWERS   OF   PARTNERS.  [CHAP.  IV. 

partnerships  was  the  avowed  purpose  of  reaping  a  goodly  harvest  of 
fees.  In  fact,  complaint  has  frequently  been  made  that  lawyers  are 
sometimes  too  diligent  and  overzealous  reapers.  But  in  all  seriousness 
it  would  defeat  the  very  object  for  which  a  law  partnership  was  formed 
if  one  of  its  several  members  were  allowed,  without  the  express  assent 
of  the  others,  to  undertake  to  bind  the  firm  to  perform  legal  services 
without  compensation  either  for  the  actual  time  and  labor  necessary  to 
be  expended,  or  for  the  responsibility  and  liability  the  firm  would  incur 
by  the  undertaking.  Certainly  it  is  the  right  of  an  attorne}-,  acting  for 
himself  alone,  as  a  matter  of  charity  or  friendship,  to  collect  a  paper 
for  another  without  charging  a  fee  for  his  services  ;  but  the  present 
case  sufficiently  demonstrates  how  serious  and  unjust  a  matter  it  would 
be  if  an  attorney  were  permitted  to  thus  bind  his  partner,  without  his 
consent,  and  with  no  remuneration  for  the  risk  incurred.  We  have  yet 
to  see  the  rare  spectacle  of  an  attorney  at  law,  or  a  firm  of  them, 
rendering  professional  services  gratuitously  as  a  recognized  and  cus- 
tomary incident  of  the  business  in  which  they  engage.  We  have  long 
ago  departed  from  the  honorarium  from  which  our  ancient  ancestors 
in  this  noble  profession  either  wholly  or  partially  derived  their  means 
of  subsistence. 

Under  the  facts  shown  on  the  trial,  therefore,  we  have  no  hesitancy 
in  saying  the  plaintiff  failed  utterly  to  make  out  a  case. 

Judgment  affirmed. 


ALSOP  v.  CENTRAL  TRUST  CO. 
38  S.  W.  (Ky.)  510.     1897. 

Action  *  by  the  Central  Trust  Co.  against  Griswold  and  Alsop,  as 
partners,  for  $200  and  interest  claimed  to  be  owing  under  a  lease. 
Plaintiff's  petition  set  forth  the  lease,  which  was  executed  by  the 
company  as  lessor,  and,  in  the  name  of  Griswold  &  Alsop,  by  Griswold, 
as  lessees.  The  petition  contained  no  allegation  as  to  the  nature  of 
the  partnership  between  the  defendants,  nor  any  as  to  Griswold's 
authority  to  execute  the  lease  for  the  firm,  but  did  allege  that  de- 
fendants used  and  occupied  the  premises  during  the  entire  term  of  said 
lease,  and  had  paid  nothing  therefor. 

Defendant  Alsop  demurred  to  the  petition  ;  the  demurrer  was  over- 
ruled and  plaintiff  had  judgment.     Defendant  appealed. 

R.  A.  Miller  and  Little  &  Little,  for  appellant. 

J.  D.  Atchinson,  for  appellee. 

Burnam,  J.  .  .  .  Partnerships,  when  considered  with  reference  to 
the  business  in  which  they  are  engaged,  may  generally  be  divided  into 
two  classes,  one  of  which  is  known  as  "  trading"  or  "  commercial" 

1  The  statement  of  facts  is  abridged,  and  apart  of  the  opinion  relating  to  a  question 
of  practice  is  omitted. 


§  2.]  POWER    TO    INCUR    A   FIRM   OBLIGATION.  341 

partnership,  and  the  other  as    "non-trading"    or    "  non-commercial  " 
partnership.      Any   member  of  an   ordinary  trading  partnership   can 
hind  the  firm  by  the  signing  of  the  firm  name  in  the  usual  course  of 
business,  as  a  part  of  the  usual  routine  of  their  affairs,  irrespective  of 
restrictions  in  the  articles  of  partnership  not  brought  to  the  knowledge 
of  the  payee.     In  a  non-trading  partnership,  however,  — that  is,  a 
partnership  engaged  in  some  occupation  which  is  not  of  a  commercial 
character,  —  a  partner  does  not  generally  possess  the  power  to  bind 
the  firm,  and  the  extent  of  his  powers  is  not  fixed  by  the  rules  of  law. 
The  general  rule  is  that  the  partners  in  such  a  firm  have  no  implied 
power  to  bind  the  partnership,  but  each  case  is  left  to  be  decided  upon 
its  particular  facts  ;  and  one  who  seeks  to  hold  the  firm  bound  upon  a 
contract  made  by  a  single  member  must  be  able  to  show  such  acts  as 
will  warrant  the  conclusion  that  the  partner  had  been  invested  by  his 
co-partner  with  the  requisite  authority  to  make  the  contract.     The  dis- 
tinction, as  set  out  by  Judge  Cofer  in  the  case  of  Judge  v.  Bras  well, 
13   Bush,   75,   is  that   in  a   commercial  partnership    the  extent  of  a 
partner's  power  to  bind  the  firm  is  a  question  of  law,  while  in  the  non- 
commercial firm  the  power  of  one  partner  to  bind  his  co-partner  is  a 
question  of  fact,  and  the  burden  of  proof  to  establish  the  facts  as  to 
the  validity  of  contracts  so  executed  by  one  member  of  such  a  partner- 
ship rests  with  the  party  claiming  to  hold  the  firm  liable.     Therefore  it 
follows  that,  in  order  to  recover  upon  written  obligation,  signed  in  the 
firm  name  by  one  of  the  partners  of  a  non-trading  partnership,  it  is 
necessary  for  the  plaintiff  to  allege   affirmatively  the   nature  of  the 
partnership,  that  the  obligation  was  executed  for  something  necessary 
for  the  transaction  of  the  business  of  the  firm,  or  that  said  partner  was 
expressly  authorized  to  make  the  contract  by  the  terms  of  the  partner- 
ship.    In  the  case  at  bar,  plaintiff's  petition  fails  to  make  an}-  of  these 
necessary   allegations.      We   are   therefore   of  the   opinion   that   the 
demurrer  to  this  paragraph  should  be  sustained,  with  leave  to  plaintiff 
to  amend   same  to  conform  to   the  views  of  the  court  herein   indi- 
cated. .  .  . 

Judgment  reversed  and  case  remanded. 


RAPP   v.    LATHAM   et   al. 

2  B.  &  Aid.  795.     1819. 

Action  for  money  had  and  received.  Plea,  first,  general  issue  ; 
secondly,  set-off.  This  action  was  brought  by  order  of  the  Lord  Chan- 
cellor against  the  defendants,  who  were  bankrupts,  and  was  defended 
by  the  assignees.  The  question  was,  whether  the  plaintiff  was  entitled 
to  prove  an}-  and  what  debt  under  the  commission.  The  two  defend- 
ants were  in  partnership  as  wine  and  spirit  merchants.  The  business 
was  under  the  sole  direction  and  management  of  Parry,  Latham  being 


Q 


42  POWERS    OF    PARTNERS.  [CHAP.  IV. 


also  an  insurance  broker.     The  plaintiff  employed  the  defendants  to 
purchase  wine  for  him  on  commission,  and  to  resell  the  same  as  oppor- 
tunity might  offer.     The  plaintiff  advanced  the  money  to  pay  for  the 
wines,  and  the  duties  thereon.     The  defendant  Parry  represented  to 
the  plaintiff  that  wines  were  actually  purchased  and   sold,  and  from 
time  to  time  rendered,  in  the  name  of  Latham  &  Parry,  accounts  of 
such  sales,  and  paid  the  proceeds  thereof  to  the  plaintiff.     These  deal- 
ings commenced  in  January,  1812.     Parry  then  wrote  to  the  plaintiff 
that  he  had  an  opportunity  of  purchasing  sixty-one  pipes  of  port  at 
£65  per  pipe,  and  he  desired  the  plaintiff  to  remit  the  mone}'  to  pay 
the  price  of  such  wines  and  the  duties  thereon  :  the  plaintiff  did  remit 
the  money,  and  Parry  represented  that  he  made  the  purchase,  and 
afterward,  in  the  name  of  the  firm,  transmitted  an  account  to  the  plain- 
tiff, stating  that  thirty  of  these  sixty-one  pipes  were  resold  at  the  price 
of  £84  per  pipe,  and  paid  the  proceeds  of  such  pretended  sale  to  the 
plaintiff.     The  other  transactions  were  similar  to  this,  and  continued 
from  January,  1812  to  1813  ;  during  that  time  Parry  represented  that 
eleven  different  purchases  of  wine  had  been  made.     Each  transaction 
formed  the  subject  of  a  separate  account,  and  all  the  purchases  were 
described   as  being  made  at  a  certain  specified  rate  per  pipe.     The 
plaintiff  conceived  that  Parry  was  in  fact  laying  out  his  money  in  bona 
fide  purchases  of  wines,  and  that  he  actually  resold  part  of  such  wines 
as  he  represented  ;  but  upon  the  bankruptcy  taking  place,  it  appeared 
that  the  transactions  were  wholly  fictitious,  and  that  Parry  had  had 
recourse  to  them  as  expedients  to  raise  money.    The  defendant  Latham 
knew  that  the  plaintiff  had  employed  Parry  to  buy  and  sell  wines  on 
commission,  but  he  had  no  knowledge  that  the  tranactions  were  fic- 
titious.    Upon  the  whole  account  the  plaintiff  had  advanced,  on  ac- 
count of  the  alleged  purchases  of  wine,  and  some  other  purchases  of 
rum,   about  which  there  was  no  question,  £126,000,  and  he  had  re- 
ceived, on  account  of  the  supposed  resale  of  part  of  the  wines  and  the 
profits  thereon,  £130,000.     He  claimed  to  recover  the  money  he  had 
advanced  for  the  purchase  of  that  part  of  the  wine  which  the  defend- 
ant Parry  had  represented  as  purchased,  and  which  they  had  never,  in 
fact,  delivered  or  resold.     The  cause  was  tried  at  the  London  Sittings 
after  last  Hilary  Term,  before  Abbott,  C.  J.,  and  it  was  contended  by 
the  plaintiff  that  he  had  a  right  to  take  each  transaction  separately, 
and  to  charge  the  defendants  with  the  amount  of  the  money  advanced 
to  them,  for  the  purchase  of  every  pipe  of  wine  not  accounted  for. 

The  Lord  Chief  Justice  was  of  opinion  that,  in  this  action  for  money 
had  and  received,  the  plaintiff  could  not  recover,  as  the  defendants  had 
iu  fact  received  no  money  beyond  what  they  had  actually  paid  to  the 
plaintiff,  and  the  plaintiff  was  therefore  nonsuited,  with  liberty  to  move 
to  enter  a  verdict  for  such  sum  as  an  arbitrator  should  award,  on  a 
principle  to  be  laid  down  by  the  court.  A  rule  nisi  having  been  ob- 
tained for  that  purpose  by  Scarlett  in  Easter  Term  last,  cause  was 
shown  on  a  former  day  in  this  term  by 


R  2.]  POWER    TO    INCUR    A   FIRM    OBLIGATION.  343 

Vauffhan,  Serjt.,  Gumey,  and  IAtiledale,  for  the  defendants. 

Scarlett,  Marryat,  and  Tindal,  contra. 

Abbott.  C.  J.,  now  delivered  the  judgment  of  the  court.  This  case 
has  been  so  recently  argued,  that  it  is  not  now  necessary  to  state  the 
circumstances  of  it,  and  it  will  be  sufficient  to  observe,  that  according 
to  the  accounts  rendered  to  the  plaintiff,  the  supposed  purchases  were 
all  alleged  to  be  made  at  certain  specified  rates  per  pipt  or  hogshead, 
so  that  each  transaction,  if  real,  was  divisible  in  its  own  nature.  Upon 
consideration  of  the  case,  we  are  of  opinion  that  the  defendant  Latham 
is  bound  by  the  acts  and  representations  of  his  partner  Parry,  and 
cannot  be  allowed  to  say  that  those  transactions  were  fictitious  which 
Parry  represented  to  be  real,  whether  such  representations  applied  to 
the  sale  of  the  whole  number  of  casks  supposed  to  have  been  purchased 
at  one  time,  or  to  a  part  only  of  such  number.  The  consequence  of 
this  will  be,  that  the  plaintiff  is  entitled  to  retain,  without  account,  all 
the  money  that  has  been  paid  to  him  upon  these  fictitious  transactions, 
as  he  would  have  been  if  the  transactions  had  been  real,  and  is  entitled 
to  recover  back  the  sums  advanced  for  the  other  supposed  purchases, 
as  money  advanced  by  him  upon  a  consideration  not  performed,  and  as 
therefore  had  and  received  by  the  defendants  to  his  use.  The  nonsuit 
therefore  must  be  set  aside,  and  a  verdict  entered  for  the  plaintiff  for 
the  sum  which  shall  be  found  due  upon  the  principle  which  I  have 
mentioned,  which  is  the  mode  most  favorable  for  the  plaintiff. 

Mule  absolute. 


HARRISON  v.  JACKSON  et  al. 
7  D.  &  E.  207.     1797. 

This  was  an  action  of  covenant  upon  an  agreement  of  three  parts 
stated  in  the  declaration  to  have  been  made  on  the  10th  of  July,  1794, 
between  the  defendants,  describing  them  as  merchants  and  partners,  of 
the  first  part,  W.  and  J.  Harrison  of  the  second  part,  and  the  plain) ill' 
of  the  third  part,  of  one  part  of  which  said  agreement,  as  being  sealed 
with  the  seal  of  the  said  W.  Sykes  for  himself  and  the  other  two 
defendants,  the  plaintiff  made  a  profert  in  court.  The  declaration 
then  stated  the  agreement  and  covenant  of  the  defendants,  the  subject 
matter  of  which  agreement  and  covenant  appeared  on  the  agreement  to 
be  a  partnership  transaction  on  the  part  of  the  defendants,  and  to  have, 
been  entered  into  on  a  full  and  valuable  consideration  received  by 
them  as  partners.  The  declaration  then  stated  the  breach  of  covenant, 
whereby  the  plaintiff  had  sustained  damage  to  the  amount  found  by 
the  jury. 

To  this  declaration  the  defendants  pleaded  that  the  agreement  was 

not  the  deed  of  the  defendants.     Issue  being  joined,  the  cause  was  died 

fat  the  sittings  after  Hilary  Term,  17'.)7.  before  Lord   Kenton  at  Guild- 


344  towers  of  partners.  [chap.  iv. 

hall,  when  the  jury  found  a  verdict  for  the  plaintiff,  damages  £477  13s. 
9c/.,  and  costs  40s.,  subject  to  the  opinion  of  this  court  on  the  following 
case. 

The  defendants  were  partners.  The  agreement  stated  in  the  declar- 
ation was  produced  ;  and  the  subscribing  witness  proved  that  it  was 
executed  in  his  presence  by  the  defendant  Sykes  in  the  following  form : 
"For  Jackson,  Self,  and  Rushforth;  W.  Sykes."  But  neither  Jack- 
son nor  Rushforth  was  present  at  the  execution.  The  question  for  the 
opinion  of  the  court  was,  whether  such  execution  of  the  agreement  by 
the  defendant  Sykes  were  binding  on  the  other  defendants,  Jackson 
and  Rushforth. 

Dampier,  for  the  plaintiff. 

Giles,  for  the  defendants. 

Lord  Kenyon,  C.  J.  I  should  be  sorry  to  have  it  supposed  that  this 
case  was  reserved  from  the  least  particle  of  doubt  that  I  had  on  the 
subject:  the  parties  came  to  nisi prius  with  the  facts  admitted  on  both 
sides ;  for  if  the  case  had  been  opened  there,  I  should  certainly  have 
given  a  decisive  opinion  against  the  plaintiff.  The  law  of  merchants  is 
part  of  the  law  of  the  land  ;  and  in  mercantile  transactions,  in  drawing 
and  accepting  bills  of  exchange,  it  never  was  doubted  but  that  one 
partner  might  bind  the  rest.  But  the  power  of  binding  each  other  by 
deed  is  now  for  the  first  time  insisted  on,  except  in  the  nisi  prius  case 
cited,1  the  facts  of  which  are  not  sufficiently  disclosed  to  enable  me  to 
judge  of  its  propriety.  Then  it  was  said  that  if  this  partnership  were 
constituted  by  writing  under  seal,  that  gave  authority  to  each  to  bind 
the  others  by  deed :  but  I  deny  that  consequence  just  as  positively  as 
the  former ;  for  a  general  partnership  agreement,  though  under  seal, 
does  not  authorize  the  partners  to  execute  deeds  for  each  other,  unless 
a  particular  power  be  given  for  that  purpose.  This  would  be  a  most 
alarming  doctrine  to  hold  out  to  the  mercantile  world  :  if  one  partner 
could  bind  the  others  by  such  a  deed  as  the  present,  it  would  extend  to 
the  case  of  mortgages,  and  would  enable  a  partner  to  give  to  a  favorite 
creditor  a  real  lien  on  the  estates  of  the  other  partners. 

Postea  to  the  defendants. 


STRAFFIN  v.   NEWELL  et  al. 

T.  U.  P.  Charlton  (Ga.),  163.     1808. 

This  was  an  action  of  covenant  brought  upon  a  charter  party,  signed 
and  sealed  thus:  "Thomas  and  Robert  Newell."  A  verdict  has  been 
rendered  for  the  plaintiff,  and  a  motion  is  now  made  to  arrest  the  judg- 
ment, upon  the  ground  that  one  partner  cannot  execute  a  deed  to  bind 
the  other. 

i  Mears  v.  Serocold,  sittings  in  Easter  Term,  1785,  at  Guildhall,  cited  by  Dampier. 


§  2.]  POWER    TO    INC  UK    A   FIRM   OBLIGATION.  345 

Davis  &  Berrien,  for  the  motion. 

Leake  against  it. 

Charlton,  J.  The  point  for  the  decision  of  the  court  is,  whether  one 
partner  can  bind  another  by  deed  ? 

The  general  principle  of  the  law  is,  that  all  partners  are  bound  by 
what  one  of  them  does  in  the  course  of  the  business;  for  quoad  hoc, 
each  partner  is  considered  as  the  authorized  agent  of  the  rest,  and 
all  are  respectively  implicated,  and  each  becomes  liable  to  the  fullest 
extent,  in  such  trade  or  business.  Law  of  Partn.  105,  Davies'  Bank. 
Law,  8. 

It  is  said  that  partnerships  embrace  only  chattel  interests,  and  the 
free  disposition  of  these  requires  not  the  solemnity  of  deeds  or  indent- 
ures. The  right  of  one  to  bind  the  interests  of  all  is  wisely  restrained 
within  the  limits  of  personal  estate,  and  it  is  with  a  view  to  this,  that 
partners  are  allowed  to  bind  each  other  by  deed.  Amer.  Lex  Mer. 
437.  It  is  also  laid  down  in  the  case  of  Gerard  v.  Basse,  1  Dallas  Rep. 
119,  that  k-  one  partner  cannot  execute  a  deed  for  another." 

But  the  case  principally  relied  on  by  Davis  and  Berrien,  is  Harrison 
v.  Jackson,  7  T.  R.  207,  where  it  is  said  by  Lord  Kenyon,  C.  J., 
"  that  the  law  of  merchants  is  part  of  the  law  of  the  land.  And  in 
mercantile  transactions,  in  drawing  and  accepting  bills  of  exchange,  it 
never  was  doubted,  but  that  one  partner  might  bind  the  rest.  But  the 
power  of  binding  each  other  by  deed  is  now,  for  the  first  time,  insisted 
on  except  in  the  nisiprius  case  cited,  the  facts  of  which  are  not  suffi- 
cienth'  disclosed  to  enable  me  to  judge  of  its  propriety." 

I  have  given  to  this  case,  and  to  all  others  I  have  had  opportunity  of 
inspecting  on  this  subject,  the  most  attentive  investigation ;  and  whilst 
I  assent  to  the  general  propositions  of  Lord  Kenyon  and  Shippen,  I 
do  not  conceive  that  the}*  apply  to  the  mercantile  transaction  of  a 
charter  party.  It  does  not  say  in  this  case  of  7  Term  Rep.  upon  what 
kind  of  agreement  covenant  was  brought,  and  I  can  find  no  cases  of 
actions  upon  charter  parties  where  the  question  was  directly  involved, 
as  it  relates  to  the  signature  of  the  partners  ;  but  there  is  a  case  in 
point  as  to  the  liability  attached  to  both  or  all  of  the  owners  of  a  ship 
bv  the  signature  and  seal  of  one. 

It  is  thus  stated  in  Beanes'  Lex  Mercatoria,  who  cites  2  Rolls.  Abr.  22, 
"  If  an  indenture  of  charter  party  be  made  between  A.  and  B.,  owners 
of  a  ship  of  the  one  part,  and  C.  and  D.,  merchants  of  the  other  part, 
but  in  the  indenture  it  is  mentioned  that  A.  and  B.  covenant  with  C. 
and  D.,  and  C.  and  B.  covenant  with  A.  and  B.,  in  this  case  A.  and  B. 
may  join  in  an  action  vs.  C.  and  D.,  though  B.  never  seals  the  deed,  for 
he  is  a  party  to  the  deed,  and  C  and  D.  have  sealed  the  other  parts  to 
B.  as  well  as  to  A."     Beanes'  Lex  Merca.  133. 

If  one  of  the  freighters  or  owners  of  a  ship,  who  are  quoad  hoc  part- 
ners, can  bind  the  other  by  his  seal,  a  fortiori,  the  signature  and  seal 
of  one  merchant  then  can  bind  the  other  in  this  species  of  mercantile 
contract ;  because  in  the  one  case  there  is  only  a  special,  and  in  the 


346  POWERS   OF    PARTNERS.  [CHAP.  IV. 

other  a  general  partnership,  the  principles  of  which  are  more  liberal  and 
extended. 

I  bottom  my  decision  upon  the  broad  ground  that  a  charter  part}'  is 
exclusively  a  mercantile  transaction,  and  always  in  the  course  of  trade. 
The  general  proposition  of  Lord  Kenyon  must  refer  to  deeds  not  in  the 
course  of  trade.  I  mean  a  deed  so  inseparably  incidental,  so  closely 
blended  with  partnerships  and  mercantile  pursuits,  as  the  contract  of 
charter  party  is.  A  charter  party  is  as  essential  in  the  course  of  trade, 
as  the  negotiation  of  bills  of  exchange  ;  and  I  can  perceive  no  difference 
between  the  exigencies  which  would  impose  a  liability  in  the  one  case, 
and  destroy  it  in  the  other.  This  contract  could  not  have  been  in  the 
contemplation  of  judges  when  they  decided  that  one  partner  could  not 
bind  the  other  by  deed.  The  silence  of  the  books,  when  it  is  supposed 
that  many  cases  might  have  occurred,  affords  the  strongest  reason  to 
believe  that  the  deed  of  charter  party  is  not  within  the  general  principle 
stated  by  Kenyon  and  Shippen.  The  deeds  the}7  speak  of  are  those 
which  reach  the  separate  estates  of  the  partners,  are  unconnected  with 
the  partnership,  or  have  no  relation  to  the  course  of  trade.  A  charter 
party  has  so  peculiar  a  view  to  mercantile  matters  and  ideas,  that  all 
the  parties  covenanting  become  liable  in  a  given  extent,  as  partners 
according  to  the  law  merchant,  Law  of  Partn.  89,  and  like  all  mer- 
cantile contracts,  it  ought  to  have  a  liberal  interpretation.  Doug.  277. 
I  have  consulted  some  merchants  on  this  subject,  and  they  inform  me, 
that  it  is  customary  either  to  sign  the  name  of  the  firm,  or  for  one  part- 
ner first  to  sign  his  own  name,  and  then  add  "  for  self  and  other  part- 
ners," mentioning  their  names.  Still,  however,  there  is  but  one 
seal,  and  the  signature  is  by  one.  I  have  also  examined  a  printed 
precedent,  and  I  find  it  is  signed  and  sealed  in  the  manner  of  this, 
which  illustrates  the  understanding  of  writers  on  the  subject. 

The  motion  in  arrest  of  this  judgment  is  therefore  overruled. 


THE  ATTORNEY-GENERAL  v.   STRANYFORTH  et  al. 

Bunbury,  97.     1721. 

An  English  information  was  brought  by  the  attorney-general,  setting 
forth  that  Nicholas  Skinner,  in  the  year  1710,  for  himself  and  compan}', 
imported  117  tons  and  18  gallons  of  Gallicia  wine,  and  upon  application 
to  the  custom  house  obtained  a  sight ;  in  pursuance  of  which  the  officers 
appointed  to  view  certified,  by  indorsement  on  the  order  of  sight,  that 
33  tons  were  so  damaged  as  to  be  only  fit  to  make  spirits  or  vinegar, 
and  sunk  one-third  in  value  ;  the  agent  of  Skinner  entered  the  said 
wines  for  Skinner  &  Co.  in  the  custom  house,  and,  by  a  mistake  of  the 
clerk  in  the  office,  the  whole  33  tons  was  allowed  for  damage,  though  no 
more  than  one-third  of  the  33  tons  was  intended  to  be  allowed  by  the 


§  2.]  POWER    TO   INCUR    A    FIRM    OBLIGATION.  347 

commissioners  ;  so  that  the  crown  was,  b}'  mistake,  defrauded  in  its 
duties  £j35,  and  the  discovery  being  made  about  the  year  1715,  this 
information  was  brought,  which  prayed  that  the  defendants  (being  five) 
might  make  good  this  deficiency  ;  and  the  court  decreed  accordingly, 
that  though  the  importation  and  entry  was  only  by  Skinner,  yet  all  the 
partners  who  were  so  at  the  time  of  the  importation,  were  liable  in  the 
whole  to  the  crown  ;  and  the  decree  was  drawn  up,  that  the  defendants 
should  pay  the  said  sum  to  the  crown,  as  Mr.  Attorney-General  should 
think  fit. 


ASH  WORTH  v.  STANWIX  et  al. 

3  E.  &  E.  701:  7  Jur.  n.  s.  467.     1S60. 

Crompton,  J.  The  question  to  be  determined  in  this  case  is,  whether 
the  defendant  Stanwix,  being  co-proprietor  with  the  other  defendant 
Walker  of  a  mine,  is  jointly  liable  with  him  for  an  injury  sustained  by 
the  plaintiff,  a  workman  in  their  common  employ,  through  the  negli- 
gence of  Walker.  The  facts  are  such  that,  if  Walker  had  been  simply 
the  fellow-workman  of  the  plaintiff,  the  case  would  have  come  within  the 
principle  that  a  servant,  sustaining  injury  from  the  negligence  of  a 
fellow-servant  engaged  in  the  same  employment,  cannot  recover  against 
the  common  master.  The  present  case  would  have  been  quite  analogous 
to  that  of  Bartonstill  Coal  Co.  v.  Reid,  3  McQ.  Sc.  App.  Ca.  266. 
But  the  present  case  is  distinguishable  from  the  class  of  cases  which 
have  been  referred  to,  in  the  important  particular  that  the  defendant 
Walker,  although  in  fact  engaged  jointly  with  the  plaintiff  in  the  work 
of  the  mine,  was  also  a  co-proprieter,  and,  as  such,  one  of  the  plaintiffs 
masters  ;  and  the  question  is,  whether  this  circumstance  takes  the  case 
out  of  the  before-mentioned  rule,  and  calls  for  the  application  of  a  differ- 
ent principle.  We  are  of  the  opinion  that  it  does,  and  that  the  plaintiff 
is  entitled  to  hold  the  defendant  Stanwix  responsible  for  the  negligence 
of  his  co-proprietor  and  partner. 

The  doctrine  that  a  servant,  on  entering  the  service  of  an  employer, 
takes  on  himself,  as  a  risk  incidental  to  the  service,  the  chance  of  injury 
arising  from  the  negligence  of  fellow-servants  engaged  in  the  common 
employment,  has  no  application  in  the  case  of  the  negligence  of  an 
employer.  Though  the  chance  of  injury  from  the  negligence  of  fellow- 
servants  maybe  supposed  to  enter  into  the  calculation  of  a  servant  in 
undertaking  the  service,  it  would  be  too  much  to  sa}r  that  the  risk  of 
danger  from  the  negligence  of  a  master,  when  engaged  with  him  in  their 
common  work,  enters  in  like  manner  into  his  speculation.  From  a 
master,  he  is  entitled  to  expect  care  and  attention  which  the  superior 
position  and  presumable  sense  of  duty  of  the  latter  ought  to  command. 
The  relation  of  master  and  servant  does  not  the  less  subsist  because, 
by  some  arrangement  between  the  joint  masters,  one  of  them  takes  on 


348  POWERS    OF   PARTNERS.  ,rCHAP.  IV. 

himself  the  functions  of  a  workman.  It  is  a  fallacy  to  suppose  that  on 
that  account  the  character  of  master  is  converted  into  that  of  a  fellow- 
laborer.  Though  engaged  with  the  plaintiff  in  a  common  employment, 
Walker  did  not  the  less  remain  the  master  of  the  plaintiff  and  the  part- 
ner of  Stanwix.  This  being  so,  it  follows  that  Stanwix  must  be  liable 
in  respect  of  the  negligence  through  which  injury  has  arisen  to  the 
plaintiff,  as  the  relation  of  partner  subsisted  between  Walker  and  Stan- 
wix;  and  as  the  negligence  was  a  matter  within  the  scope  of  a  common 
undertaking,  we  think  that  Stanwix  is  equally  liable  with  Walker.  That 
a  partner  is  liable  for  the  negligence  of  his  co-partner  when  engaged  in 
the  business  of  the  partnership  is  not  only  clear  in  principle,  but  is 
established  by  the  case  of  Moreton  v.  Hordern,  4  B.  &  C.  223,  in  this 
court,  where  two  proprietors  of  a  stage-coach  were  held  liable  with  a 
third  for  the  negligence  of  the  latter,  by  whom  the  coach  had  been 
driven.  Now  it  has  never  been  doubted  that  for  personal  negligence  of 
the  master,  whereby  injury  is  occasioned  to  the  servant,  the  master  will 
be  liable.  Personal  negligence  is  clearly  established  against  Walker ; 
and  it  being  admitted  that  Stanwix  was  his  partner,  the  latter  must  be 
held  jointly  responsible  in  respect  of  such  negligence,  and  is  therefore 
liable  in  this  action.  The  rule  must  be  made  absolute  to  enter  the  ver- 
dict against  him,  as  well  as  the  other  defendant. 


BRUNDAGE  v.   MELLON. 

5  N.  D.  72  :  63  N.  W.  209.     1895. 

Corliss,  J.  Defendant  was  sued  as  surviving  member  of  the  firm  of 
Mellon  Bros.,  for  deceit  in  the  sale  of  horses  by  such  firm  to  plaintiff. 
On  the  trial,  plaintiff  sought  to  establish  the  allegations  of  the  com- 
plaint as  to  fraudulent  representations  connected  with  such  sale  by 
offering  to  prove  that  the  member  of  the  firm  who  was  dead  at  the  time 
of  the  trial  had,  in  effecting  the  sale,  made  certain  representations 
touching  the  soundness  of  the  horses  sold.  The  evidence  was  excluded 
by  the  trial  court,  plainly  on  the  ground  that  one  partner  is  not  liable 
for  the  fraudulent  representations  of  his  co-partner  in  effecting  a  sale 
of  partnership  property.  This  is  not  the  law,  and,  on  principle,  it 
ought  not  to  be  the  law.  Although  a  few  courts  have  taken  a  different 
view  of  the  question,  there  is  ample  authority  to  support  the  rule 
which  renders  all  the  members  of  the  firm  liable  for  the  tort  of  one  of 
its  members  under  such  circumstances.  1  Bates,  Partn.  §  472  ;  Chester 
v.  Dickerson,  54  N.  Y.  1  ;  Mechem,  Ag.  §  743  ;  Wolfe  v.  Pugh,  101 
Ind.  293;  Story,  Partn.  §  108;  Strang  v.  Bradner,  114  TJ.  S.  555; 
Locke  v.  Stearns.  1  Mete.  (Mass.)  560;  Jewett  v.  Carter,  132  Mass. 
335.  See  also  Haney  Manufg  Co.  v.  Perkins,  78  Mich.  1  ;  Stanhope 
v.  Swafford,  80  Iowa,  45. 


§  2.]  POWER   TO   INCUR    A   FIRM    OBLIGATION.  349 

Our  Code  settles  the  law  in  this  State.  The  liability  of  one  partner 
for  the  act  of  another  partner  is  declared  by  section  4052,  Comp.  Laws, 
to  be  governed  b}'  the  title  relating  to  agency  ;  and  when  we  turn  to 
that  title,  we  find  it  there  clearly  asserted  that  the  principal  is  liable 
for  the  wrong  of  the  agent  when  committed  bv  him  in  and  as  a  part  of 
the  transaction  of  the  business  of  the  principal.  Comp.  Laws,  §  3997. 
The  offer  of  the  plaintiff  by  the  questions  he  asked  was  to  prove  a  rep- 
resentation made  by  the  deceased  partner  in  and  as  a  part  of  the  trans- 
action of  the  business  of  his  principal;  i.  e.,  the  other  partner,  the 
defendant  in  this  case.  The  offer  was  to  prove  that  the  representations 
were  made  in  connection  with  a  sale  of  partnership  property,  and  as  a 
means  of  effecting  such  sale.  It  is  obvious  that  the  trial  court  ruled 
out  the  evidence  on  the  theory  that  the  defendant  was  not  liable  for 
the  deceit  of  the  deceased  partner,  as  the  ruling  followed  a  statement 
by  plaintiff's  counsel  in  answer  to  an  inquiry  by  the  court  touching  the 
nature  of  the  action  as  disclosed  by  the  complaint,  that  it  was  not  an 
action  for  breach  of  warranty,  but  for  deceit.   .  .  . 

The  judgment  of  the  District  Court  is  reversed,  and  a  new  trial 
ordered.     All  concur. 


HOBBS   et  al.  v.  CHICAGO   PACKING   &c.   CO. 

98  Ga.  576  :  25  S.  E.  584.     1896. 

The  Chicago  Packing  &  Provision  Company  brought  bail  trover 
against  Hobbs  &  Tucker  for  certain  meat.  The  defences  were,  in  brief, 
that  defendants  had  committed  no  tort  for  which  this  action  would  lie, 
and.  if  they  were  liable  at  all,  it  was  only  upon  a  contract  of  guaranty ; 
and  that  Hobbs,  although  a  member  of  the  firm  of  Hobbs  &  Tucker  for 
the  purpose  of  doing  a  banking  business  (collections,  deposits,  loans, 
and  nothing  else),  really  had  no  interest  in  the  firm,  and  had  no  con- 
nection with  or  knowledge  of  the  transactions  involved  in  this  case. 
The  jury  found  for  the  plaintiff,  and  defendants'  motion  for  a  new  trial 
was  overruled. 

W.  T.  Jones,  Wooten,  &  Wooten,  and  J.  W.  Walters,  for  plaintiffs  in 
error. 

P.  IT.  Pope,  contra. 

Lumpkin,  J.  1.  A  wrong  delivery  of  goods,  either  negligently  or 
wilfully  made,  by  one  who  had  been  intrusted  with  the  custody  of 
them,  is  in  law  a  conversion  by  the  latter.  This  rule  has  been  applied 
to  carriers  of  goods.  Railway  Co.  v.  Sloat,  93  Ga.  803.  In  principle, 
it.  is  alike  applicable  to  the  defendants  in  the  present  case.  There  was 
ample  evidence  to  warrant  the  jury  in  finding  that  the  meat  of  the 
Chicago  Packing  &  Provision  Company  was,  by  its  indorsement  of  the 
bills  of  lading,  in  effect  delivered  to  Hobbs  &  Tucker,  to  be  by  them 
delivered  to  Ragan  upon  his  paying  for  the  same,  and  not  otherwise- 


350  POWERS   OF   PARTNERS.  [CHAP.  IV. 

According  to  the  verdict,  the  defendants  violated  the  trust  reposed  in 
them  ;  and,  this  being  so,  they  ought  to  make  good  the  loss  sustained 
by  the  plaintiff  on  account  of  their  unauthorized  and  unlawful  conduct. 

2.  There  was  some  evidence  tending  to  show  that  the  plaintiff  had 
accepted  a  guaranty  from  Hobbs  &  Tucker  that  some  of  the  meat 
which  had  already  been  delivered  would  be  paid  for,  and  that,  therefore, 
the  plaintiff's  action  should  have  been  brought  upon  the  defendants' 
breach  of  contract,  and  not  in  tort.  We  think,  however,  that,  taking 
the  evidence  as  a  whole,  it  establishes  the  fact  that,  when  this  guaranty 
was  accepted,  the  plaintiff  was  in  utter  ignorance  of  the  fact  that  the 
meat  to  the  price  of  which  the  guaranty  related  had  been  actually 
delivered  to  Ragan.  The  plaintiff  was  evidently  under  the  impression 
at  the  time  this  guaranty  was  accepted  that  the  meat  still  remained  in 
the  cars  or  in  the  railroad  depot  under  the  control  of  Hobbs  &  Tucker  ; 
and  it  is  apparent  that,  in  agreeing  to  ship  more  meat  upon  Hobbs  & 
Tucker  guarantying  payment  of  that  already  shipped,  the  plaintiff 
simply  intended  to  expedite  the  deliver}'  of  the  latter  and  the  collection 
of  the  money  due  them  for  the  same,  they  supposing  that  Hobbs  & 
Tucker  would  see  to  it  that  Ragan  came  up  with  the  cash  within  the 
time  limited  in  the  guaranty,  but  never  contemplating  that  he  should 
get  the  meat  without  paying  for  it. 

3.  It  seems  that  the  meat  was  delivered  to  Ragan  upon  orders  signed 
by  Tucker  alone,  and  it  was  therefore  urged  that  Hobbs  was  not  liable. 
Under  the  facts,  the  act  of  Tucker  in  giving  these  orders  was  really  an 
act  of  the  partnership.  It  was  the  same,  in  effect,  as  if  he  had  gone  to 
the  station  agent,  and  personally  directed  him  to  let  Ragan  have  the 
meat ;  and  it  is  evident  that  the  agent  thus  treated  and  regarded  the 
orders  sent  by  Tucker.  It  can  hardly  be  doubted  that  the  act  of 
Tucker  in  causing  the  deliver}'  to  be  made  to  Ragan  was  within  the 
scope  of  the  partnership  business ;  and  consequently,  whether  it  was 
done  with  the  knowledge  and  consent  of  Hobbs  or  not,  he  was  in  law 
liable.  ;tEach  partner  being  the  agent  of  the  firm,  the  firm  is  liable 
for  his  torts  committed  within  the  scope  of  his  agency,  on  the  principle 
of  respondeat  superior,  in  the  same  way  that  a  master  is  responsible 
for  his  servant's  torts,  and  for  the  same  reason  [that]  the  firm  is  liable 
for  the  torts  of  its  agents  or  servants."  1  Bates,  Partn.  §  461. 
"  Where  one  partner,  in  a  matter  connected  with  the  business  of 
the  partnership,  does  an  act  to  the  injury  of  a  third  person,  which  is 
a  tort  by  construction  or  inference  of  law  merely,  his  co-partner  is 
equally  liable  with  him  for  the  consequences  of  the  act."  Myers  v. 
Gilbert,  18  Ala.  467.  See  also  Witcher  v.  Brewer,  49  Ala.  119. 
"  Partners  may  be  sued  in  an  action  of  trover,  although  there  was  no 
joint  conversion  in  fact.  A  joint  conversion  may  be  implied  in  law  by 
consent  of  a  partner  to  the  acts  of  his  co-partners."  Bane  v.  Detrick, 
52  111.  20.  "  Where  a  partner,  in  the  course  of  partnership  business, 
commits  a  fraud,  or  does  acts  prohibited  by  law.  the  firm  is  liable, 
although  the  other  partners  have  no  knowledge  of  such  fraud  or  illegal 


2-] 


POWER   TO   INCUR   A  FIRM   OBLIGATION.  351 


net"  Tenney  v.  Foote,  95  111.  100.  "The  appropriation  or  mis- 
application  by  one  partner  of  moneys  or  other  property  in  the  custody 
of  the  firm,  within  the  scope  of  its  business,  or  in  the  custody  ot  such 
partner  as  a  representative  of  the  firm,  renders  each  partner  liable  to 
the  true  owner  for  such  conversion  ;  and,  when  thus  in  the  custody  ot 
one  partner,  it  is  immaterial  whether  the  other  partners  knew  anything 
about  it  or  not."  17  Am.  &  Eng.  Enc.  Law,  1070.  See  also  Alex- 
ander  v.  State,  56  Ga.  478.  i 

4    We  find  no  reason  for  setting  aside  the  verdict  in  this  case.     It 
was  fully  warranted  by  the  evidence,  and  no  material  error  of  law  was 

committed  on  the  trial. 

Judgment  affirmed* 


GILRUTH  v.  DECELL. 

1G  So.  250:  72  Miss.  232.     1894. 

Bill  in  chancery,  reciting  that  complainant  was  in  1892  the  wife  of 
T.  F.  Decell,  deceased,  who  was  then  a  member  of  the  firm  of  Gilruth 
&  Decell ;  that  at  that  time  she  was  the  owner  of  a  house  and  lot  in 
Jackson,  Miss.  ;  that  she  sold  same,  and  that  $1,600  of  the  purchase 
money  was  placed  to  her  credit  in  the  Capital  State  Bank  of  Jackson  ; 
that  the  amount  was  withdrawn  from  said  bank  on  a  check  drawn  Jan- 
uary 11,  1892,  in  favor  of  the  Bank  of  Yazoo  City  ;  that  to  said  check 
complainant's  name  and  that  of  T.  F.  Decell  were  signed  ;  that  com- 
plainant's signature  was  forged  by  T.  F.  Decell ;  that  she  was  ignorant 
of  the  forgery  for  some  months  thereafter,  and  that  she  left  her  hus- 
band in  March,  1893,  and  that  he  was  killed  soon  afterwards,  and  that 
T.  J.  Moore  was  the   administrator  of  his   estate ;  that  J.  N.  Gilruth, 
as  surviving  partner,  after  qualifying  as  required  by  law,  took  charge 
of  the  partnership  property,  and  is  now  administering  the  same  ;  that 
the  SI, 600  obtained  by  the  forgery  was  placed  to  the  credit  of  T.  F. 
Decell  in  the  Bank  of  Yazoo  City,  and  was  checked  out  by  him  for  his 
individual  use  ;  that  on  the  16th  of  February,  1892,  he  checked  on  said 
deposit  in  favor  of  Gilruth  &  Decell  for  S500,  which  sum  was  placed 
to  the  credit  of  T.  F.  Decell  on  the  books  of  Gilruth  &  Decell  as  capi- 
tal paid  in  by  him  to  complete  the  amount  to  be  contributed  by  him  in 
the  firm  of  Gilruth  &  Decell ;  that  said  sum  of  $500  is  still  in  the  firm 
of  Gilruth   &  Decell,  and  has  gone  into  the  hands  of  the    surviving 
partner ;  that  the  removal  and   conversion  of  said  sum  of  money  by 
said  T.  F.  Decell  was  a  fraud  upon  complainant,  and  that  said  Decell 
held  same  as  trustee  ex  maleficio;  that  complainant  is  entitled  to  have 
said  sum  of  $500,  mingled  with  the  firm  assets  of  Gilruth  &  Decell, 
repaid  to  her  out  of  the  firm  assets  in  preference  to  all  other  claims 
against  said  assets,  with  interest  from  the  date  it  was  withdrawn.     The 
bill  makes  Gilruth,  as  surviving  partner,  the  only  defendant,  and  pra.ys 


352  POWERS    OF   PARTNERS.  [CHAP.  IV. 

that  the  court  will  decree  that  the  said  sum  of  $500  was  her  money, 
and  was  held  in  trust  for  her,  and  went  into  the  firm  of  Gilruth  & 
Decell  impressed  with  said  trust,  and  that  it  be  refunded  her  out  of  the 
firm  assets.  The  court  sustained  demurrer  to  this  bill,  from  which 
complainant  appealed. 

Barnett  &  Thompson,  for  appellant. 

E.  E.  Baldwin,  for  appellee. 

Whitfield,  J.  It  is  not  alleged  in  the  bill  that  Gilruth  actually 
participated  in  the  fraud  by  which  Decell  converted  the  trust  fund  to 
his  own  use,  and  afterwards  paid  it  into  the  firm  in  payment  of  the 
balance  of  his  subscription  to  its  capital  stock ;  nor  that  he  had  any 
actual  knowledge  of  anything  done  by  Decell  in  connection  therewith. 
The  acts  and  doings  of  Decell  throughout  were  wholly  outside  the  scope 
of  the  partnership  business.  Under  the  circumstances,  while  there 
may  be  some  cases  to  the  contraiy,  —  as  Palmer  v.  Scott,  68  Ala.  382, 
and  Welker  v.  Wallace,  31  Ga.  362,  —  it  is  well  settled  in  Mississippi, 
Pickels  v.  McPherson,  59  Miss.  216,  and  generally,  that  a  bill  cannot 
be  maintained  against  the  firm  to  recover  from  it  the  trust  fund  thus 
put  b}T  the  guilty  partner,  without  participation  or  knowledge  on  the 
part  of  the  others,  into  the  assets  of  the  firm.  Knowledge  of  the 
guilty  partner  in  such  case  is  not  the  knowledge  of  the  firm.  Liabilit}' 
of  the  other  partners  in  such  case,  if  it  exist,  must  grow  out  of  par- 
ticipation, as  joint  wrongdoers,  in  the  fraud,  and  not  out  of  the  fact 
that  the}'  are  partners,  or  their  liability  as  partners.  Bates,  Partn. 
§  481  ;  Evans  v.  Bidleman,  3  Cal.435  ;  1  Lindl.  Partn.  *142,  *143. 

Jessel,  M.  R.,  thus  emphatically  puts  it  in  AVilliamson  v.  Barbour, 
9  Ch.  Div.  535,  536  :  "  When  we  come  to  a  question  of  fraud,  different 
considerations  arise.  It  is  not  true  that  the  knowledge  of  a  fraud  by 
a  partner  is  necessarily  the  knowledge  of  the  firm.  A  very  obvious 
instance  .  .  .  may  be  shown,  and  is  best  shown,  by  an  example.  Sup- 
pose there  is  a  firm  with  half  a  dozen  partners  who  have  a  clerk,  and 
the  clerk  has  been  in  the  habit  of  receiving  presents  from  one  of  the 
sellers  to  the  firm  in  order  to  pass  goods  of  short  weight,  and  further 
suppose  that  the  clerk,  not  having  been  found  out,  is  taken  into  part- 
nership as  a  junior  partner  and  continues  the  practice.  Is  it  to  be  im- 
agined, under  these  circumstances,  that  in  a  court  of  equity  the  other 
partners  could  not  sue  the  vendor  of  the  goods  for  the  fraud,  and  not 
only  sue  him  but  their  partners  also?  ...  I  emphatically  deny  that  any 
such  doctrine  could  by  any  possibilit}'  be  laid  down  by  any  judge,  and 
I  need  not  say  it  has  never  been  laid  down.  Of  course  fraud  must  be 
an  exception.  1  put  the  case  of  a  clerk  knowing  it  before  he  became  a 
partner,  and  not  interfering  with  it  afterwards.  But  it  is  immaterial 
that  the  knowledge  was  acquired  during  the  partnership.  ...  It  ap- 
pears to  me  that  that  kind  of  notice  will  not  do  wThen  it  is  applied  to 
cases  of  fraud."  And  says  Lindley  :  "If  one  partner  is  a  trustee,  and 
he  improperly  employs  the  trust  funds  in  the  partnership  business,  his 
knowledge  that  he  is  so  doing  is  not  imputable  to  the  firm  ;  and  there- 


§  2.]  POWERS   OF   THE   MAJORITY.  ooo 

fore,  to  affect  the  other  partners  with  a  breach  of  trust,  further  evidence 
must  be  adduced.''     It  is  not  within  the  scope  of  the  bill  to  subject 
Decell's  interest  in  the  partnership  assets.     Besides,  his  administrator 
is  not  a  party.     Robertshaw  v.  Hanway,  52  Miss.  713,  717. 
The  decree  is  reversed,  demurrer  sustained,  and  bill  dismissed. 


§  2.    Powers  of  the  Majority. 

PEACOCKS   v.    CHAMBERS. 
46  Pa.  St.  434.     1863. 

Strong,  J.  The  plaintiffs  and  defendants  entered  into  co-partner- 
ship on  the  8th  day  of  February,  1860,  for  the  purpose  of  publishing 
a  daily  newspaper  in  the  city  of  Philadelphia.  By  the  articles  of  co- 
partnership it  was  agreed,  among  other  things,  that  the  stock  of  the 
firm  should  be  divided  into  fifty  shares,  and  that  each  proprietor 
should  be  interested  in  the  proprietorship,  stock,  property,  profits, 
and  losses,  in  the  proportion  which  the  share  or  number  of  shares 
held  by  him  bore  to  the  whole  number  of  shares.  It  was  agreed  that 
the  association  should  continue  for  the  full  period  of  five  years,  from 
the  first  day  of  February,  1860,  and  that  at  the  expiration  of  that 
time,  or  upon  its  other  sooner  dissolution,  the  stock  and  property 
should  be  sold,  divided,  or  otherwise  disposed  of.  It  was  also  stip- 
ulated that  an  editor  should  be  employed,  from  time  to  time,  for  a 
term  of  not  more  than  five  years,  at  any  one  engagement,  and  at  a 
salary  of  not  more  than  $2,000  per  annum;  and  also  a  publisher  for 
a  term  of  not  more  than  five  years,  at  any  one  engagement,  at  a 
salary  of  not  more  than  $1,200  per  annum,  each  of  whom,  during  the 
term  of  his  employment,  should  be  a  proprietor. 

The  complainants  are  the  holders  of  twenty-seven  shares  of  the 
stock,  and  the  defendants  are  the  holders  of  the  other  twenty-three 
shares. 

The  bill  avers  that  on  the  8th  of  February,  1860,  James  S.  Chambers, 
one  of  the  defendants,  was  elected  publisher  of  the  newspaper,  but 
that  neither  at  the  time  of  his  election  nor  subsequently  was  any  term 
assigned  for  the  duration  of  his  employment;  that  he  continued  to 
act  as  publisher  until  August  16,  1862,  but  did  not  devote  care,  skill, 
and  attention  to  the  business  of  the  department  to  which  he  had  been 
assigned;  that  in  the  month  of  April,  1861,  he  accepted  an  appoint- 
ment as  navy  agent,  at  Philadelphia,  the  duties  of  which  office  have 
occupied  his  time  and  attention  ever  since,  to  the  exclusion  of  the 
interests  of  the  co-partnership.  The  bill  further  charges  that  at  a 
regular  meeting  of  the  association,  held  on  the  16th  of  August,  a.d. 
1862,  at  which  all  the  proprietors  were  present  except  Ferdinand  L. 

23 


354  POWERS   OF   PARTNERS.  [CHAP.  IV. 

Fetherston,  one  of  the  complainants  (he,  however,  having  been  repre- 
sented by  his  proxy),  a  resolution  was  passed,  removing  the  said 
J.  S.  Chambers  from  being  the  publisher,  and  appointing  the  said 
Fetherston  in  his  stead,  and  that  the  resolution  received  in  its  favor 
the  votes  of  the  holders  of  twenty-seven  shares  of  the  stock.  The 
bill  further  avers  that  from  the  time  of  the  adoption  of  said  resolu- 
tion to  the  present,  the  defendants  have  refused  to  permit  Fetherston 
to  act  as  publisher  of  the  newspaper  in  place  of  the  said  Chambers, 
and  have  hindered  and  prevented  him  from  entering  on  the  duties  of 
his  appointment,  in  violation  of  the  articles  of  the  association.  The 
complainants  therefore  pray  that  the  defendants  may  be  enjoined 
against  denying  to  the  said  Fetherston  the  right  to  publish  the  said 
newspaper,  and  against  interfering  or  intermeddling  with  him  in  the 
exercise  of  his  rights  as  publisher,  and  against  refusing  him  access 
to  said  paper  and  all  the  property  of  the  co-partnership,  and  against 
disobeying  or  interfering  in  any  way  with  the  resolution  passed 
August  16,  1862. 

To  this  bill  the  defendants  have  put  in  separate  answers.  They 
agree  in  substance  in  denying  that  Chambers  held  his  appointment 
at  the  will  of  the  association,  or  of  the  complainants,  who  are  a 
majority  of  the  partners,  and  they  assert  in  answer  to  interrogatories 
propounded,  that  the  defendant,  Chambers,  was  on  the  8th  day  of 
February,  1860,  selected  and  chosen  publisher  of  the  newspaper,  and 
that  it  was  distinctly  understood  and  agreed,  by  and  between  the 
said  Chambers  and  the  said  partners,  that  the  term  of  five  years  was 
assigned  between  themselves,  and  agreed  upon  with  him  for  the  term 
of  his  employment,  and  that  he  was  not  to  be  discharged  from  his 
office  or  employment  during  the  said  term. 

We  have,  then,  a  case  of  a  partnership  in  which  a  majority  of  the 
partners,  both  in  number  and  interest,  have  determined  that  the 
duties  of  publisher,  as  defined  in  their  fundamental  articles,  shall  be 
performed  by  an  agent  whom  they  have  chosen.  The  agent  was 
eligible,  for  he  was  a  proprietor.  So  far  as  it  was  in  their  power, 
the  majority  have  not  only  imposed  upon  him  those  duties,  but  they 
have  conferred  upon  him  all  the  rights  and  privileges  which,  under 
the  articles  of  co-partnership,  belong  to  the  office  of  publisher.  Such 
is  the  effect  of  the  resolution  of  August  16,  1862,  and  this  was  done 
at  a  regular  meeting  of  all  the  partners,  at  which  each  was  allowed 
a  voice.  With  this  action  of  the  majority  the  defendants  are  not 
only  dissatisfied,  but  they  deny  the  power  to  pass  such  a  resolution 
appointing  the  complainant,  Fetherston,  the  publisher,  and  one  of 
them  refuses  to  permit  him,  though  thus  appointed,  to  enjoy  the 
rights  and  enter  on  the  duties  of  his  appointment. 

That  it  was  the  action  of  the  firm,  and  obligatory  upon  all  the  part- 
ners as  such,  is  maintained,  both  in  reason  and  authority,  unless  it 
was  in  conflict  with  the  fundamental  articles.  In  Collyer  on  Part- 
nership, 104,  the  author,  after  remarking  that  it  had  been  said  by  a 


§  2.1  POWERS   OF   THE    MAJORITY.  355 

learned  writer  (Cbitty's  Laws  of  Commerce,  vol.  IH.  p.  224)  that,  in 
the  absence  of  an  express  stipulation,  a  majority  must  decide  as  to 
the  disposal  of  the  partnership  property,  adds  that,  "It  may  perhaps 
be  laid  down  that,  in  a  partnership  without  articles,  the  power  of  the 
majority  to  bind  the  minority  is  confined  to  the  ordinary  transactions 
of  the  partnership."  In  Story  on  Partnership,  c.  7,  §  123,  the  author 
says:  "  But  another  question  may  arise,  and  that  is,  whether,  in  case 
of  partnership,  the  majority  is  to  govern  in  case  of  a  diversity  of 
opinion  between  the  partners  as  to  the  partnership  business  and  the 
conduct  thereof,  or  whether  one  partner  van,  by  his  dissent,  arrest 
the  partnership  business,  or  suspend  the  ordinary  powers  and  author- 
ities of  the  other  partners  in  relation  thereto  against  the  will  of  the 
majority,  where  there  is  no  stipulation  in  the  partnership  articles  to 
control  or  vary  the  result  (for,  if  there  be  any  stipulation  that  ought 
to  govern),  the  general  rule  would  seem  to  be  that  each  partner  has 
an  equal  voice,  however  unequal  the  shares  of  the  respective  parties 
may  be,  and  the  majority,  acting  fairly  and  bona  fide,  have  the  right 
and  authority  to  conduct  the  partnership  business  within  the  true 
scope  thereof,  and  dispose  of  the  partnership  property,  notwithstand- 
ing the  dissent  of  the  minority." 

If,  then,  the  rule  be  that  in  the  management  of  the  interior  affairs 
of  a  partnership,  a  majority  of  the  partners  must  govern,  what  is 
there  in  this  case  to  take  it  out  of  the  rule?  Why  is  not  the  resolu- 
tion adopted  on  the  16th  of  August,  1862,  at  a  meeting  of  all  the 
partners,  obligatory  upon  them  all,  it  having  been  voted  for  by  a 
majority  in  number,  and  by  those  who  held  more  than  half  the 
number  of  shares? 

The  parties  agreed  that  a  publisher  should  be  elected  for  a  term 
not  exceeding  five  years.  They  fixed  a  maximum  period  of  service 
beyond  which  they  could  not  transgress,  but  no  minimum  was  defined. 
The  articles  left  it  in  their  power  to  employ  a  publisher  for  any  less 
term  than  five  years.  Duration  of  service  was  left  to  be  defined  by 
agreement,  outside  of  the  articles,  or,  if  not  defined,  it  was  neces- 
sarily at  will.  Of  course,  if  not  defined  by  agreement,  any  incum- 
bent was  removable  by  the  firm.  Clearly,  therefore,  it  rests  upon  the 
party  which  denies  power  to  remove  to  show  that  the  power  was  fet- 
tered by  an  agreement  for  a  definite  period  of  service  not  expired 
when  the  resolution  of  August,  1862,  was  adopted.  This  is  not  shown 
by  the  pleadings. 

And  as  the  pleadings  do  not  show  any  hiring  or  employment  of 
Mr.  Chambers  for  a  definite  term,  so  the  proofs  taken  utterly  fail  to 
establish  it. 

Decree  reversed  and  the  relief  prayed  for  in  the  bill  granted,  with 
costs  against  the  defendants. 


356  POWERS   OF   PARTNERS.  ("CHAP.  IV. 


§  2.    Effects  of  Dissent. 

CARR   et  al.  v.    HERTZ   et  al. 

54  N.  J.  Eq.  127  :  33  At.  194.     1895. 

The  bill  is  filed  by  two  partners  to  annul  a  series  of  mortgages 
made  by  a  third  person,  as  partner,  upon  all  the  firm  property,  to 
certain  of  the  firm  creditors.  All  these  partners  were  executors  or 
executrixes  of  deceased  persons  who  had  by  will  left  that  part  of  their 
estate  theretofore  invested  in  the  business  still  in  the  business,  with 
power  to  their  personal  representatives  to  continue  the  said  business. 
To  understand  the  questions  raised,  it  is  essential  that  the  evolution 
of  the  partnership  which  existed  at  the  date  of  the  execution  of  these 
mortgages  should  be  exhibited  in  detail,  as  well  as  the  transactions 
which  preceded  and  attended  the  making  of  these  instruments.  In 
1883,  there  was  a  firm  in  the  city  of  Newark  carrying  on  the  business 
of  tanners  and  dealers  in  leather.  The  firm  was  composed  of  Joseph 
W.  Carr,  John  W.  Carr,  and  Louis  M.  Smith.  Joseph  W.  Carr  died 
in  1884.  By  his  will  he  gave  to  his  wife  the  use  of  all  his  estate 
during  her  widowhood,  with  remainder  over  to  her  children.  The 
will  contained  the  following  provision :  "  My  desire  is  that  the  interest 
which  I  now  have  as  partner  in  the  leather  business  conducted  in  the 
said  city  by  the  firm  of  Smith  &  Carr  shall  remain  undisturbed,  and 
that  my  widow  shall,  at  the  expense  of  my  estate,  employ  some  per- 
son who  shall  be  acceptable  to  the  surviving  members  of  the  said  firm 
to  represent  her."  Martha  Carr,  the  widow,  was  appointed  sole  exec- 
utrix. She,  having  drawn  as  much  of  her  husband's  interest  as  was 
in  excess  of  that  of  the  other  partners,  left  the  balance  of  the  estate 
which  had  been  invested  in  the  business  still  in  the  business.  The 
business  was  thereafter  conducted  by  her  and  the  surviving  partners 
until  February  19,  1886.  At  that  time  the  interest  of  Louis  M. 
Smith  was  bought  out  by  John  W.  Carr  and  the  executrix.  There- 
after the  business  was  continued  in  the  firm  name  of  "  John  "W.  Carr 
&  Co.,"  or,  as  indicated  on  some  of  the  bill  heads,  "John  W.  Carr 
&  M.  Carr."  John  W.  Carr  was  the  managing  member  of  the  part- 
nership. One  Charles  Wenzel  was  in  his  employ;  and  upon  John 
W.  Carr's  absence  in  California,  by  reason  of  his  sickness,  Wenzel 
was  given  a  power  of  attorney  to  transact  the  business  and  sign  the 
firm  name.  John  W.  Carr  died,  leaving  a  will  dated  December  5, 
1887,  in  which  will  he  gave  his  wife  a  certain  portion  of  his  property, 
and  then  gave  the  residue  of  his  estate,  real  and  personal,  to  his  exec- 
utors and  the  survivors  of  them,  in  trust  for  the  following  purposes: 
"  To  continue  the  business  of  the  firm  during  the  lifetime  of  his  wife 
if  it  should  be  found  profitable  and  his  executors  should  deem  it  best 
to  do  so."  He  authorized  his  executors  to  enter  into  any  arrange- 
ment or  agreement,  as  they  saw  fit,  to  continue  and  carry  on  the  said 


§  2.]  EFFECTS   OF   DISSENT.  357 

business,  with  or  without  the  present  partner,  and  to  use  the  residue 
of  the  estate  as  they  may  see  tit,  and  to  manage  and  conduct  the  busi- 
ness for  his  said  interest  therein,  in  all  respects  according  to  their 
judgment,  until  the  death  of  his  wife,  or  until  such  time  in  her  life- 
time as  the  said  executors  should  see  lit  to  discontinue  the  same. 
He  empowered  his  executors  to  sell,  in  their  discretion,  any  part  of 
his  real  estate  which  was  not  embarked  in  the  said  business,  and  also 
the  proceeds  of  such  business  upon  the  discontinuance  thereof.  In 
this  will,  the  testator's  wife,  Caroline,  and  Charles  "Weuzel,  were 
appointed  executors.  Xo  arrangement  was  entered  into  by  the  said 
executors  with  the  partner  Martha  Carr  in  respect  to  the  continuation 
of  the  business,  nor  was  any  agreement  or  understanding  entered  into 
between  Caroline  A.  Carr  and  Charles  Wenzel  in  respect  to  the 
carrying  on  of  the  firm  business.  The  business,  however,  went  on 
as  usual.  The  two  ladies  were  entirely  unfamiliar  with  the  practical 
operation  of  the  business,  and  the  business  was  continued  on  the 
same  line  and  under  the  same  management  as  it  had  been  conducted 
prior  to  John  W.  Carr's  death,  with  the  exception  that  checks  and 
notes  and  evidences  of  indebtedness  were  required  to  be  signed  by 
Martha  W.  Carr;  and,  although  the  bank  seems  to  have  recognized 
some  signatures  of  the  firm  name  made  by  Charles  Wenzel,  the  agree- 
ment of  the  co-partners  was  that  the  firm  name  should  be  signed  only 
by  Martha  W.  Carr.  After  the  probate  of  the  will,  "Wenzel  was  urged 
to  have  an  inventory  of  the  estate  of  his  testator  made,  which  would 
have  necessitated  an  investigation  into  the  affairs  of  the  partnership. 
This  he,  on  one  excuse  or  another,  postponed  from  time  to  time,  and 
it  was,  in  fact,  never  made.  On  various  occasions  and  to  different 
persons,  he  repeatedly  remarked  that  he  was  not  interested  in  the 
concern  individually.  According  to  Mr.  Wenzel's  testimony,  the 
firm  had  met  with  a  loss  previous  to  the  death  of  John  W.  Carr;  and 
some  time  in  October,  1891,  the  attention  of  the  two  ladies  was  called 
to  the  fact  that  the  estate  was  in  an  embarrassed  condition.  The 
two  executrixes  called  a  meeting  of  the  creditors  of  the  firm  on 
November  23,  1891.  At  this  meeting  the  authority  of  the  executrix 
was  practically  turned  over  to  the  creditors.  They  were  empowered 
to  inspect  and  protect  the  firm  property.  The  creditors  appointed  a 
committee,  which  committee  went  to  the  factory,  and  were  refused 
admittance  by  Mr.  "Wenzel.  Subsequently,  the  committee  gained 
access  to  the  factor}7,  made  an  inventory  and  appraisement  of  the 
personal  property,  and  put  a  keeper  in  charge,  and  continued  the 
work  of  tanning.  On  November  30th,  another  meeting  of  creditors 
was  held,  at  which  the  executrixes,  through  their  counsel,  offered  to 
turn  over  all  the  assets  of  the  firm  to  two  trustees  for  the  creditors, 
and  hold  the  proceeds  until  all  the  creditors  signed  a  certain  paper 
which  allowed  the  widows  to  retain  their  homes.  On  the  same  day, 
the  executrixes  executed  an  assignment  of  all  the  firm  property  to 
two  trustees  to  carry  out  this  purpose,  but  said  assignment  did  not 


358  POWERS   OF    PARTNERS.  lCIIAP-  iv- 

become  effective,  because  some  of  the  creditors  refused  to  accede  to 
the  condition.  Charles  Wenzel  refused  to  take  any  part  in  the  pro- 
posed action  of  the  executrixes,  but,  beginning  on  December  1st,  he, 
between  that  date  and  December  13th,  inclusive,  made  a  series  of 
mortgages,  which  practically  exhausted  the  entire  firm  property.  He 
made  two  mortgages  on  December  1st  to  Isaac  Hertz, — one  upon 
the  hides  in  process  of  manufacture,  to  secure  $775.49 ;  the  other 
upon  all  tools,  fixtures,  accounts  receivable,  two  horses,  carriages, 
w^agons,  and  harness,  to  secure  the  sum  of  $850.15.  On  December 
2d,  he  made  a  mortgage  upon  all  the  property  covered  by  the  second 
Hertz  mortgage,  as  well  as  upon  the  628  hides,  to  the  Newark  Bark 
Company,  to  secure  the  sum  of  $2,320.  On  December  3d,  he  made 
three  concurrent  mortgages  upon  the  hides,  accounts  receivable,  tools, 
fixtures,  all  their  business  assets,  — one  to  Cornelius  Fitzpatrick  and 
John  Doolan,  to  secure  81,118.70;  another  to  Charles  Smythe,  to 
secure  £3,337.63;  and  still  another  to  secure  Levi  R.  Barnard  the  sum 
of  $1,277.15.  On  December  13th  he  made  three  real-estate  mortaages, 
covering  all  the  interest  of  the  firm  in  certain  designated  property. 
One  of  these  mortgages  was  made  to  Cornelius  Fitzpatrick  and  John 
Doolan,  to  secure  $1,118.70;  another,  to  Charles  Smythe,  to  secure 
the  sum  of  $3,337.63;  and  one  to  Levi  R.  Barnard,  to  secure 
$1,277.15.     These  mortgages  were  concurrent. 

James  E.  Howell,  for  complainants. 

Chandler  W.  Biker,  for  defendants. 

Reed,  V.  C.  As  already  stated,  this  bill  is  filed  by  Caroline  A. 
Carr,  executrix  of  John  W.  Carr,  and  Martha  Carr,  executrix  of 
Joseph  W.  Carr,  attacking  several  mortgages  made  by  Charles 
"Wenzel.  The  authority  of  Mr.  AVenzel  to  execute  those  mortgages, 
if  it  existed  at  all,  must  rest  upon  an  implied  authority  residing  in 
him  as  a  partner.  It  is  clear  he  did  not  become  a  partner  in  the 
business  by  any  conventional  arrangement  between  Caroline  A.  Carr 
and  himself.  His  right  to  rank  as  a  partner  resulted  entirely  as 
an  inference  of  law,  from  the  fact  that  he  had  carried  on,  with  the 
property  of  his  testator,  the  business  as  a  firm  business.  But  inas- 
much as  his  co-executor,  while  having  no  voice  in  the  active  transac- 
tion of  the  business,  seems  to  have  acquiesced  in  its  continuance,  the 
law  would  seem  clearly  to  clothe  Wenzel  with  the  authority  of  a  part- 
ner in  the  business.  Assuming,  therefore,  that  he  possessed  the 
power  and  authority  of  a  partner,  the  question  supervenes:  Did  the 
implied  authority  with  which  a  partner  is  invested  authorize  him  to 
execute,  under  the  circumstances  of  this  case,  the  series  of  mortgages 
now  attacked?  It  is  entirely  settled  that  a  partner  has  the  implied 
authority  to  sell  any  portion  of  the  firm  property.  He  possesses  that 
power  although  the  sale  may  be  made  to  pay  an  antecedent  debt,  and 
although  the  sale  itself  may  lead  to  the  insolvency  of  the  firm.  So 
may  he  pledge  or  mortgage  a  part  or  all  of  the  firm  property  for  the 
purpose  of  raising  funds  to  carry  on  the  partnership  business,  or  to 


§  2.]  EFFECTS   OF   DISSENT.  359 

pay  some  one  or  more  of  the  outstanding  debts  of  the  firm.     All  this 
power  is  conceded  to  a  partner  so  long  as  bis  acts  are  bona  fide.   .   .   . 

But  it  seems  to  me  that  tbe  case  presents  another  question,  which 
is  whether  the  power  of  Wenzel,  if  it  would  otherwise  have  existed, 
was  not  in  this  instance  limited  by  the  known  dissent  of  the  other 
partners  to  his  act.  It  is  entirely  settled  that,  while  third  persons 
dealing  with  the  firm  will  not  be  affected  by  any  limitation  upon  the 
authority  of  partners  euntaiued  in  the  articles  of  co-partnership,  yet, 
if  a  person  dealing  with  one  partner  has  notice  of  this  limitation,  he 
cannot  hold  the  firm  if  the  partner's  act  is  violative  of  the  limita- 
tion. 1  Lindl.  Partn.  170.  And  knowledge  of  restrictions  upon  the 
power  of  a  partuer  may  be  established  by  circumstantial  evidence 
as  well  as  by  direct  proof  of  notice.  17  Am.  &  Eng.  Enc.  Law, 
996.  It  is  especially  well  settled  that  in  respect  to  those  implied 
powers  with  which  a  partner  is  invested,  if  a  party  dealing  with  such 
partner  receives  notice  of  the  dissent  of  his  co-partners  from  any  act 
of  such  partner,  the  third  party  cannot  hold  the  firm  by  reason  of 
such  act.  The  apparent  implied  authority  is  revoked  by  dissent 
coupled  with  the  notice  of  dissent.  Id.  997;  Gallway  v.  Mathew, 
10  East,  264;  Willis  o.  Dyson,  1  Starkie,  164;  Monroe  v.  Conner, 
1.")  Me.  178;  Matthews  v.  Dare,  20  Md.  248;  Knox  v.  Burlington,  50 
Iowa,  320;  Wilcox  v.  Jackson,  7  Colo.  521. 

In  most  cases  where  the  occasion  for  the  application  of  this  rule 
has  arisen,  either  a  direct  notice  of  the  dissent  was  given  to  the  per- 
son dealing  with  the  partner,  or  a  general  notice  of  which  he  has 
knowledge.  The  question,  however,  is  not  in  respect  to  the  form  of 
the  notice,  but  whether  there  was  notice,  and  circumstances  may 
speak  as  forcibly  as  words.  Wilcox  v.  Jackson,  supra.  Now,  in 
view  of  these  well-settled  rules,  how  do  these  mortgages  stand?  It  is 
in  evidence  that  the  two  executrixes,  on  November  23,  1891,  called 
a  meeting  of  the  firm  creditors,  at  which  meeting  their  intention  was 
manifested  to  devote  the  property  to  the  payment  of  all  the  firm 
creditors.  This  purpose  still  more  clearty  appeared  by  the  transac- 
tions which  occurred  at  and  which  followed  the  meeting  of  November 
30th.  At  this  meetiug  it  was  proposed  to  turn  the  property  over  to 
trustees,  who  were  to  take  charge  and  sell  the  same,  and  pay  the 
creditors  pro  rata.  There  was,  indeed,  a  condition  annexed  that  the 
homes  of  the  executrixes  should  be  left  intact;  but  that  the  intention, 
and  sole  intention,  of  these  executrixes,  was  an  equal  distribution  of 
the  firm  property  among  the  creditors,  is  unmistakable.  Now,  at 
this  meeting  of  creditors  all  the  mortgagees  were  present.  They  all 
knew  that,  so  far  as  the  two  executrixes  were  concerned,  they  intended 
this  disposition  of  the  property,  and  that  they  intended  no  other. 
Wenzel  himself,  of  course,  knew  the  intention  of  the  executrixes. 
He  knew  that  they  had  refused  to  make  mortgages  to  other  firm 
creditors.  He  himself  asserts  that,  inasmuch  as  they  chose  to  adopt 
their  method,  he  concluded  that  he  would  adopt  his.     He  knew  that 


360  POWEES    OF   PAKTNEKS.  [CHAP.  IV. 

the  trustees  representing  the  creditors  were  in  possession  of  the  fac- 
tory, and  I  have  no  doubt  that  the  mortgagees  knew  the  same.  Now, 
on  the  heels  of  the  meeting  of  November  30th  and  the  action  of  the 
trustees  taking  possession  of  the  factory,  these  mortgagees  hastened 
to  Wenzel,  and,  on  the  1st,  2d,  and  3d  of  December,  induced  him 
to  make  the  chattel  mortgages.  They  knew  —  no  reasonable  person 
could  have  failed  to  know  —  that  the  two  executrixes  were  opposed  to 
any  action  upon  "Wenzel's  part,  and  certainly  of  his  execution  of  any 
mortgages.  Now,  if  it  be  true  that  these  mortgagees,  as  well  as 
Wenzel,  had  notice  of  the  antagonism  of  the  two  executrixes  to  the 
execution  of  any  mortgage  to  any  of  the  creditors,  the  rule  applies 
that  the  implied  power  which  he  may  have  had  to  dispose  of  the 
property  by  way  of  mortgage  was  revoked  by  the  circumstances 
just  mentioned. 

Again,  it  seems  to  me  that  there  is  another  feature  in  this  case 
which  leads  to  the  same  result.  It  will  be  recalled  that  Mr.  Wenzel 
was  one  of  the  two  personal  representatives  of  a  deceased  partner. 
These  two  represented  a  single  interest  in  the  firm,  the  other  interest 
being  represented  by  Caroline  A.  Carr,  the  other  executrix.  Now, 
while  one  of  two  executors  or  administrators  has  the  power  to  sell,  in 
the  course  of  administration,  any  of  the  property  belonging  to  the 
estate,  yet  the  property  that  these  personal  representatives  held  at 
the  time  of  these  mortgages  was  trust  property.  The  will  of  John 
W.  Carr  impressed  all  the  property  that  had  been  invested  in  this 
business  with  an  express  trust.  It  seems  entirely  clear  that,  in  exe- 
cuting the  discretionary  power  with  which  they  were  invested  by  the 
will  in  dealing  with  this  property,  they  could  only  act  jointly.  Thus, 
the  power  to  continue  the  property  in  the  partnership  business,  if 
they  should  deem  best  to  do  so;  the  power  to  enter  into  some  arrange- 
ment to  carry  on  the  business  either  with  or  without  Caroline,  the 
surviving  partner;  the  power  to  sell  the  real  estate  upon  the  discon- 
tinuance of  the  business,  —  all  these  powers  were  confided  to  joint 
trustees,  and  required  joint  execution.  So  far  as  respected  the  con- 
duct of  the  business,  Mr.  Wenzel  was  probably,  by  virtue  of  his  legal 
character  as  partner,  —  certainly  by  the  authority  which  was  con- 
ferred upon  him  by  the  permission  of  the  other  partners,  —  entitled 
to  buy  and  sell  and  conduct  all  the  current  business  of  the  partner- 
ship as  any  other  partner;  but  when  he  attempted  to  dispose  of  all 
the  property  of  the  firm,  and  therefore  all  of  his  trust  property,  not 
as  an  act  done  in  transacting  the  current  business  of  the  partnership, 
but  after  admitted  insolvency,  as  a  final  disposition  of  all  the  prop- 
erty, it  seems  to  me  that  the  trust  restriction  upon  his  separate  power 
comes  into  play.  Now,  that  he  was  no  partner,  save  by  virtue  of  his 
position  as  executor,  was  well  known  to  all  the  creditors  of  the  firm. 
They  knew  that,  on  the  winding  up  of  the  business,  anything  that 
might  remain  belonged  to  the  two  trust  estates;  that  this  trust 
estate  was  represented  by  two  trustees:  and  yet,  by  the  act  of  one 


§  2.]  NOTICE    OF   LIMITATIONS   ON    A   PARTNER'S   POWER.  3G1 

against  the  dissent  of  another,  they  accepted  these  mortgages,  which 
admittedly  extinguished  the  trust  property  entirely.  For  the  reasons 
stated,  I  think  that  the  whole  series  of  mortgages  should  be  declared 
void. 

In  respect  to  the  real-estate  mortgages,  they  seem  to  be  inefficacious 
to  bind  the  firm  property  upon  another  ground.  As  a  general  rule, 
one  partner,  without  the  assent  of  his  co-partners,  cannot  bind  them 
by  any  act  which  requires  a  seal.  Ellis  v.  Ellis,  47  N.  J.  Law,  70. 
And  as  a  mortgage  requires  a  seal,  or  what  in  this  State  stands  for 
a  seal,  its  execution  by  one  partner  is  within  this  restriction.  For 
this  reason,  and  because  each  partner  is  a  tenant  in  common,  the 
general  rule  seems  to  be  that  real  estate  belonging  to  a  firm,  not 
engaged  in  the  sale  of  real  estate,  cannot  be  conveyed  or  incumbered 
by  a  mortgage  made  by  one  partner,  unless  such  power  is  expressly 
conferred  upon  him  or  the  title  is  vested  in  him.  1  Lindl.  Partn. 
137;  T.  Pars.  Partn.  337;  Chief  Justice  Shaw,  in  Tapley  v.  Butter- 
field,  1  Mete.  (Mass.)  518. 

There  should  be  a  decree  for  the  complainants.1 


§  2.    Notice  of  Limitations  on  a  Partner's  Power. 

INTERNATIONAL  TRUST  CO.   v.   WILSON. 

161  Mass.  80:  36  N.  E.  589.     1894. 

Action  on  three  promissory  notes  dated  April  3,  April  30,  and  July 
16,  1891,  signed  "  Wilson,  Cassells,  &  Company,"  —  the  first  two  to  the 
order  of  defendant  and  indorsed  in  defendant's  name,  the  third  to  the 
order  of  plaintiff;  and  for  rnone}'  had  and  received  at  the  respective 
dates  of  the  notes.  At  the  time  plaintiff  discounted  the  notes,  defend- 
ant was  a  member  of  the  firm  of  Wilson,  Cassells,  &  Co.  The  notes 
were  executed  b}'  Cassells  in  the  firm  name,  and  defendant's  name  was 
indorsed  on  the  first  two  notes  by  Cassells  without  Wilson's  authority. 
Plaintiff  claimed  to  recover  the  amount  advanced  to  Cassells  on  these 
notes  as  money  loaned  to  the  firm.  Upon  evidence  that  the  mone}-  was 
used  b}'  Cassells  for  his  own  benefit,  and  not  for  the  firm,  that  there 
was  an  agreement  between  him  and  Cassells  that  no  money  should  be 
borrowed  for  the  firm  except  upon  notes  payable  to  Wilson's  order  and 
indorsed  by  him,  and  that  he  had  indorsed  fifteen  such  notes  which  had 
been  discounted  by  plaintiff,  defendant  asked  the  court  to  charge, 
among  other  things,  that  the  form  of  the  notes  in  suit,  as  well  as  of 
those  previously  used  in  all  transactions  with  the  plaintiff,  was  notice  to 
it  that  the  loans  were  not  made  to  the  partnership,  but  to  Wilson  indi- 
vidually, and  that  plaintiff  must  establish  that  Cassells  had  authority 

1  Decree  affirmed  unanimously  by  the  Court  of  Errors,  for  the  reasous  given  iu  the 
Court  of  Chancery.     54  N.  J.  Eq.  700. 


362  POWERS    OF   PARTNERS.  [CHAP.  IV. 

from  defendant  in  his  individual  capacity  to  act  as  his  agent,  and  such 
authority  could  not  be  implied  from  the  fact  that  they  were  partners. 
The  trial  judge  declined,  and  instructed  the  jury  :  "lam  unable  to  rule 
that  the  notes  themselves  show  that  this  money  which  Cassells  obtained 
on  the  discount  of  these  notes  was  for  Wilson  individually.  I  do  not 
mean  to  say  there  may  not  possibly  be  some  evidence  of  it,  — I  mean  I 
cannot  rule  that  the  form  of  the  notes  themselves  indicate  that." 
Verdict  for  the  plaintiff  on  the  third  note,  and  for  the  amounts  of  the 
other  two  as  money  had  and  received  by  the  firm.  The  defendant 
alleged  exceptions. 

Ji.  31.  Horse,  for  plaintiff. 

/S.  L.  Whipple,  for  defendant. 

Barker,  J.  ...  2.  If,  as  the  defendant  contends,  the  court  had  de 
clined  to  permit  the  jury  to  consider  the  form  of  the  notes  upon  the 
question  whether  the  plaintiff  should  be  charged  with  notice  that  there 
was  an  agreement  between  Cassells  and  the  defendant  limiting  Cassells' 
authority  to  borrow  money  for  the  firm  to  loans  on  notes  payable  to 
and  indorsed  by  the  defendant,  such  a  ruling  would  have  been  wrong. 
But,  as  we  construe  the  bill  of  exceptions,  the  juiy  were  permitted  to 
consider  the  form  of  the  notes  in  connection  with  all  the  evidence,  but 
were,  in  effect,  also  instructed  that  the  form  of  the  notes  was  not,  as 
matter  of  law,  conclusive  upon  the  question.  The  defendant  requested 
the  court  to  instruct  the  jury  that  the  form  of  the  notes  "  was  notice  to 
the  plaintiff,"  and  that  it  "gave  notice  to  the  plaintiff."  This  would 
have  been  in  substance  a  ruling  that  the  form  of  the  notes  was,  as  mat- 
ter of  law,  conclusive  in  favor  of  the  defendant  upon  the  question,  and 
would  have  been  contrary  to  the  authorities.  The  true  rule  was  that 
the  jury  might  consider  the  form  of  the  notes  in  connection  with  all  the 
other  evidence  in  determining  the  question  whether  they  should  in  fact 
charge  the  plaintiff  with  notice  of  a  limitation  of  the  authority  of  Cas- 
sells to  borrow  monej'  for  his  firm.  Atlas  Nat.  Bank  v.  Savery,  127 
Mass.  75,  77 ;  Freeman's  Nat.  Bank  v.  Savery,  Id.  78 ;  Thompson  v. 
Hale,  6  Pick.  259  ;  Wait  v.  Thayer,  118  Mass.  473,  478.  In  Bank  v. 
Law,  127  Mass.  72,  the  defendants'  indorsement  being  above  that  of 
the  payee  made  it  apparent  in  the  light  of  St.  1874,  c.  404,  that  their 
liability  was  conditional  and  secondary,  and  therefore  prima  facie,  at 
least,  for  the  accommodation  of  the  maker.  In  that  case  the  inference 
was  made  necessary  b}'  the  effect  of  the  statute,  but  the  decision  has 
no  bearing  in  support  of  the  defendant's  contention  that  the  inference 
of  notice  of  a  limitation  upon  the  authority  of  one  partner  to  borrow 
money  for  the  use  of  his  firm  should  have  been  held  a  necessary  infer- 
ence from  the  form  of  the  note  in  the  case  at  bar.  It  is  obvious  that 
the  same  form  might  have  been  used  if  Cassells'  authority  had  been 
unlimited.  The  case  of  Cutting  v.  Daigneau,  151  Mass.  297,  cited 
upon  this  point  by  the  defendant,  has  no  bearing  upon  it.  The  note 
was  one  given  to  a  partner  b}*  his  firm,  which  became  insolvent  and 
was  dissolved,  and  the  note,  when  long  past  due,  was  indorsed  to  the 


§  3.]  POWERS    OF   A   PARTNER    AFTER   DISSOLUTION.  363 

plaintiff  merely  that  the  action  might  not  be  defeated  by  the  formal  ob- 
jection that  the  payee,  being  one  of  the  promisors,  could  not  bring  an 
action  against  himself;  and  the  action  tailed  because  the  firm  having 
failed,  and  its  creditors  not  having  been  paid,  there  was  no  surplus  to 
divide  among  its  members,  and  the  plaintiff  stood  no  better  than  the 
original  payee.  Nor,  in  our  opinion,  did  the  ruling  given  withdraw  the 
form  of  the  notes  from  the  consideration  of  the  jury.  The  notes  were 
in  evidence,  and  the  instruction  could  not  have  been  understood  to 
withdraw  them  from  the  jury,  but  merely  to  declare  that  they  did  not 
show  or  indicate  notice  conclusively  or  as  matter  of  law. 

3.  The  only  remaining  contention  argued  by  the  defendant  is  that 
the  court  finally  withdrew  from  the  jury  the  question  whether  the  plain- 
tiff should  be  charged  with  actual  or  constructive  notice  of  Cassells' 
fraud.  The  jury  had  found  that,  in  fact,  the  plaintiff  had  no  knowledge 
or  notice  of  the  limitation  of  Cassells'  authority,  nor  that  he  was  then 
acting  as  an  agent  of  the  defendant,  and  not  as  a  member  of  the  firm. 
The  remaining  evidence  applicable  to  the  question  was  not  sufficient  to 
warrant  a  finding  that  the  plaintiff  did  not  take  the  notes  and  advance 
the  mone}'  to  the  firm  in  good  faith.  There  was  no  dispute  that  the 
plaintiff  took  the  notes  before  maturity,  and  for  value.  The  evidence 
that  Mr.  Graham,  its  president,  had  noticed  unusual  facts  about  the 
bank  account,  indicating  that  the  firm  was  not  doing  a  flourishing  busi- 
ness ;  that  he  had  seen  Cassells  the  worse  for  liquor,  and  had  thought 
of  writing  the  defendant  about  him  ;  that  he  had  notified  Cassells  on 
account  of  these  things  that  he  would  not  discount  for  him  to  the  ex- 
tent  he  had  been  doing ;  that  he  knew  that  the  defendant  was  in  busi- 
ness at  Fitchburg  and  paying  little  attention  to  the  business  in  Boston, 
and  so  practically  at  Cassells'  mercy  if  Cassells  was  disposed  to  defraud 
him,  —  were  rnereby  suspicious  circumstances,  consistent  with  the 
plaintiff's  good  faith,  and  not  sufficient  to  justify  charging  it  with  notice 
of  any  infirmity  or  taint  in  the  transaction.  There  was  no  evidence  of 
such  recklessness  as  would  be  inconsistent  with  honest}1  of  purpose  or 
good  faith.  Smith  v.  Livingston,  111  Mass.  342;  Freeman's  Nat. 
Bank  v.  Savery,  127  Mass.  75,  79  ;  Lee  v.  Whitney,  149  Mass.  447. 

Exceptions  overruled.1 


§  3.    Powers  of  a  Partner  after  Dissolution. 

BUTCIIART   v.   DRESSER. 

4  De  G.,  M.  &  G.  542.     1853. 

This  was  an  appeal  from  a  decree  of  ViCE-CnANCELLOit  Wood.  The 
facts  of  the  case  are  stated  in  10  Hare,  453.  The  following  is  an  outline 
of  them. 

1  The  statement  of  facts  is  shortened,  and  a  part  of  the  opinion  dealing  with  a 
question  of  practice  is  omitted. 


3G4  POWERS   OF   PARTNERS.  [CHAP.  IV. 

Messrs.  Butcbart  &  Tempest  carried  on  business  in  partnership,  as 
share-brokers,  till  October  11, 18-44,  when  the  partnership  was  dissolved. 
Before  the  dissolution  Mr.  Tempest  had  entered  into  contracts  for  pur- 
chases of  shares  on  behalf  of  the  firm.  After  the  dissolution,  Tempest 
borrowed  money  of  the  bankers  of  the  late  firm  to  enable  him  to  com- 
plete the  purchases,  and  at  the  same  time  deposited  the  shares  as  a 
security,  with  a  memorandum  in  the  name  of  the  firm,  authorizing  the 
bankers  to  sell  the  shares.  A  sale  having  been  made  by  the  bankers 
accordingly,  Mr.  Butcbart  instituted  this  suit  against  them,  seeking  to 
make  them  liable  for  the  value  of  the  shares,  as  at  the  highest  price  at 
which  they  might  have  been  sold  since  the  deposit,  on  the  ground  that 
the  sale  was  unauthorized. 

The  Vice-Chancellor  held  that  the  sale  was  binding  on  the  plaintiff, 
who  now  appealed  from  that  decision. 

Mr.  Bailey  and  Mr.  BagsTiawe,  in  support  of  the  appeal. 

Mr.  Bacon  and  Mr.  Osborne,  for  the  respondents,  were  not  called 
upon. 

The  Lord  Justice  Turner.  This  is  a  bill  by  one  of  two  partners 
in  a  dissolved  partnership  seeking  to  charge  the  Yorkshire  Banking 
Company  with  the  value  of  a  number  of  shares  which  the  dissolved 
partnership  had  agreed  to  purchase  before  the  dissolution,  and  two 
points  only  arise  in  the  case  :  first,  whether  the  deposit  made  by  Mr. 
Tempest  after  the  dissolution  was  or  was  not  valid ;  secondly,  assum- 
ing the  deposit  to  have  been  within  his  authority,  whether  a  sale  by 
the  bank  was  or   not  binding  on  the  partnership. 

Now  that  a  partner  has,  during  the  partnership,  power  to  pledge  the 
partnership  assets  for  partnership  purposes,  cannot  be  denied.  That 
he  has  power  to  sell  during  the  partnership,  for  partnership  purposes, 
is  equally  clear.  The  question,  therefore,  is  reduced  to  this,  whether 
the  power  to  pledge  or  sell  is  or  is  not  gone  upon  the  dissolution. 
The  general  law  is  clear  that  a  partnership,  though  dissolved,  continues 
for  the  purpose  of  winding  up  its  affairs.  Each  partner  has,  after  and 
notwithstanding  the  dissolution,  full  authority  to  receive  and  pa\-  money 
on  account  of  the  partnership,  and  has  the  same  authority  to  deal  with 
the  property  of  the  partnership,  for  partnership  purposes,  as  he  had 
during  the  continuance  of  the  partnership.  This  must  necessarily  be 
so.  If  it  were  not,  at  the  instant  of  the  dissolution,  it  would  be  neces- 
sary to  apply  to  this  court  for  a  receiver  in  every  case,  although  the 
partners  did  not  differ  on  an}'  one  item  of  the  account.  Nor  is  there 
any  inconvenience  in  this  state  of  the  law  ;  for  it  is  competent  to  an}r 
partner  to  apply,  in  case  of  necessity,  for  a  receiver,  and  to  have  the 
affairs  of  the  partnership  wound  up  under  the  direction  of  this  court, 
and  thus  to  prevent  his  partner  from  exercising  unduby  any  power 
which  he  has  as  a  partner. 

It  is,  however,  contended  that  in  this  case  the  plaintiff  had  given 
notice  to  the  bankers  not  to  pa}r  any  check  drawn  on  account  of  the 
partnership.     But  it  is  not  disputed  that  contracts  had  been  entered 


§  3.]  POWERS    OF   A    PARTNER    AFTER   DISSOLUTION.  365 

into  before  the  dissolution,  and  the  question  is  how  those  contracts 
were  to  be  fulfilled. — it  being  the  duty  of  each  party  to  fulfil  them. 
One  partner  considered  it  expedient  that  the  purchases  should  not  be 
completed,  but  that  the  shares  should  be  thrown  back  on  the  hands  of 
the  vendors.  The  other  partner  considered  it  right  to  sell  the  shares, 
and  settle  the  contract  by  completion  and  realization.  Neither  partner 
applied  to  this  court  in  the  matter.  What  was  the  necessary  conse- 
quence? Was  it  not  that  the  original  contracts  entered  into  before  the 
dissolution  ought  to  be  completed,  and  the  matter  treated  as  remaining 
in  the  state  in  which  it  was  at  the  time  of  the  dissolution?  It  seems  to 
me  to  be  clear  that  in  these  circumstances  of  a  difference  of  opinion 
between  the  partners,  as  to  retaining  or  giving  back  the  purchased 
property,  and  of  neither  of  them  applying  to  this  court,  the  proper 
course  was  to  perform  the  contracts.  The  question  arises  whether 
Mr.  Tempest  had  authority  to  raise  money  for  the  purpose  of  complet- 
ing the  purchases.  If  the  partnership  had  continued  there  could  have 
been  no  doubt  on  the  subject,  and  I  think  that  there  is  no  doubt  that  it 
subsisted  after  the  dissolution  for  the  purposes  of  the  contracts  entered 
into  during  its  continuance.  The  true  solution  of  the  question  is,  that 
if  the  plaintiff  bad  reason  to  complain  of  the  acts  of  his  partner,  his 
proper  course  was  to  apply  to  this  court  for  a  receiver. 

The  appeal  must  be  dismissed  with  costs. 

The  Loud  Justice  Knight  Bruce  concurred.1 

1  In  Frazer  v.  Kershaw,  2  K.  &  J.  496  (1856),  after  the  dissolution  of  a  firm  by  the 
bankruptcy  of  one  partner,  a  separate  creditor  of  the  other  partner  obtained  judg- 
ment, aud  the  sheriff  sold  to  defendant  the  judgment  debtor  partner's  share  in  the  firm 
assets.  Later,  the  judgment  debtor  was  adjudged  a  bankrupt,  and  plaintiff,  having  beeu 
appointed  assignee  of  the  joint  estate  and  effects,  obtained  an  injunction  restraining 
defendant  from  selling  or  intermeddling  with  the  firm  goods  as  her  sole  property, 
pending  an  action  for  an  accounting.  Vice-Chancellor  Wood  said  (p.  501),  F\>x  v. 
Hanbury,  Cowp.  445  (1776),  "  Decided,  that  if  one  of  two  partners  becomes  bankrupt, 
the  solvent  partner,  in  winding  up  the  affairs  of  the  partnership,  has  a  right  to  sell  the 
partnership  property  to  pay  the  partnership  debt.  But  it  does  not  follow  that  this 
right  can  be  transferred  to  another.  The  solvent  partner  would  not  be  able  to  assign 
over  to  another,  as  part  of  'all  his  right  and  interest,'  the  power  of  sale  so  vested  in 
him  for  the  payment  of  debts.  That  power  is  a  personal  authority,  personal  to  him- 
self in  his  capacity  of  partner,  and  which  he  may  exercise  in  that  capacity.  Still  less 
can  it  be  inferred  from  Fox  v.  Hanbury,  that  a  solvent  partner,  by  exposing  himself, 
although  perfectly  bona  fide,  to  a  judgment,  and  allowing  his  share  to  be  taken  in  exe- 
cution, can  pass  to  the  sheriff  any  such  power  of  selling  the  partnership  property  for  the 
purpose  of  winding  up  the  partnership  affairs.  The  sheriff  can  have  no  such  power 
any  more  than  a  stranger  has  such  power.  It  is  a  power  confined  to  the  partner  him- 
Belf,  which,  when  exercised  bona  fide,  the  courts  have  maintained,  to  enable  him  to 
proceed  in  winding  up  the  partnership  affairs  in  due  course." 


366  POWERS    OF   PARTNERS.  [CHAP.  IV. 

RICHARDSON   v.    MOIES  et  al. 
31  Mo.  430.     1862. 

Ewing,  J.  Moies  &  Woodward,  during  their  partnership,  and 
under  the  firm  name  of  Moies  &  Co.,  executed  certain  promissory 
notes  to  the  plaintiff  for  an  indebtedness  subsisting  prior  to  the  dis- 
solution of  the  partnership,  which  took  place  in  January,  1858.  The 
notes  in  suit  were  dated  in  March,  1858,  and  executed  by  Moies  in 
the  firm  name.  It  was  proved  by  the  plaintiff  that  there  was  an 
agreement  between  him  and  Moies  &  Woodward,  when  the  first  notes 
were  given  in  December,  1857,  to  the  effect  that,  as  the  firm  would 
not  be  able  to  pay  the  same  at  maturity,  they,  upon  paying  $500  at 
that  time,  might  give  new  notes  for  the  balance,  allowing  further 
time.  There  was  also  evidence  tending  to  show  that  Moies  in  some 
cases  had  given  notes  in  the  firm  name,  after  dissolution,  with  Wood- 
ward's assent;  also,  that  he  (Woodward)  denied  the  right  of  Moies 
to  do  so  without  his  authority.  It  is  not  claimed  that  there  was  any 
authority  or  assent  as  it  respects  the  notes  in  question,  other  than 
that  by  the  agreement  mentioned.  Nor  is  it  maintained  that  one 
partner,  after  the  dissolution  of  the  partnership,  can  make  a  note  in 
the  name  of  the  firm,  or  in  renewal  of  a  note  of  the  firm,  so  as  to 
bind  the  other  members,  without  special  authority.  The  evidence 
introduced  by  the  plaintiff,  as  to  the  agreement,  was  objected  to, 
and  exceptions  taken  to  its  admission. 

It  would  seem  that  the  notes  sued  on  were  given  at  the  maturity  of 
the  first,  pursuant  to  the  agreement  had  in  December  previous.  Moies, 
under  this  agreement,  had  authority  to  execute  the  notes  in  the  name 
of  the  firm,  unless  it  was  revoked  by  the  fact  of  the  dissolution  of  the 
partnership.  Admitting  that  there  may  have  been  no  consideration 
for  the  promise  of  the  plaintiff  to  give  time  on  the  balance  of  the 
debt,  and  that  the  agreement  would  not  have  availed  the  defendants 
had  Richardson,  disregarding  it,  sued  on  the  first  notes.  Yet  the 
notes  in  controversy  were  given  for  a  debt  contracted  by  the  firm,  in 
respect  to  which  the  liability  of  the  firm  remained  the  same,  of  course, 
after  as  before  the  dissolution.  And  as  the  authority  was  conferred 
for  the  purpose  of  renewing  a  pre-existing  obligation,  the  considera- 
tion for  which  is  not  questioned,  the  termination  of  the  partnership 
did  not  revoke  it,  if  it  were  originally  sufficient  for  the  purpose 

intended. 

Judgment  affirmed. 


5  3.]  POWERS   OF    A    PARTNER    AFTER   DISSOLUTION.  367 

POTTER   v.    TOLBERT. 
71N.W.  (Mich.)  849.     1897. 

Moore,  J.  This  suit  was  commenced  the  latter  part  of  1895  to 
recover  a  balance  claimed  to  bedueupon  a  note  dated  January  8,  lvv7, 
signed  by  "Leroy  Moore  and  Company,"  upon  the  back  of  which 
was  an  indorsement  of  "five  hundred  dollars  paid  January  '.'.  1892." 
Defendant,  Tolbert,  filed  with  his  plea  a  denial  under  oath  of  his 
execution  of  the  note.  The  case  was  tried  by  a  jury,  who  rendered 
a  verdict  for  the  full  amount  claimed  by  the  plaintiff.  Defendant 
appeals,  and  claims  that  under  the  proofs  a  verdict  should  have  been 
directed  in  his  favor. 

The  plaintiff's  testimony  tends  to  show  that  for  some  years  prior 
to  1884  defendant,  Tolbert,  was  a  member  of  the  firm  of  Leroy  Moore 

6  Co.,  who  were  engaged  in  the  banking  business  at  Greenville, 
Mich.  The  plaintiff  was  a  depositor  in  the  bank,  which  suspended 
payment  and  closed  its  doors  in  June,  1884.  The  plaintiff  was  one 
of  a  committee  of  creditors  and  depositors.  The  committee  met  with 
Moore  and  Tolbert  at  or  about  the  time  of  the  suspension,  and  were 
told  by  Tolbert  that  he  was  a  full  partner  in  the  business;  that  at 
this  meeting  there  was  a  proposition  made  by  the  committee  to  call 
the  creditors  together,  and  recommend-that  they  should  take  60  cents 
on  the  dollar,  and  that  Mr.  Moore  and  Mr.  Tolbert  refused,  saying 
they  had  always  paid  100  cents  on  the  dollar,  and  that  all  they  wanted 
was  time  to  liquidate;  that  after  this  time  plaintiff  was  paid  interest 
on  the  face  of  the  account  up  to  the  date  upon  which  the  note  was 
given.  The  plaintiff  further  testified  that  Mr.  Moore  had  the  active 
management  of  the  bank  during  the  time  Moore  &  Co.  were  in  busi- 
ness,  and  had  the  active  management  of  liquidating  their  affairs; 
that  there  was  due  him  on  his  deposit  January  8,  1887,  the  amount 
stated  in  the  note  which  he  took  on  that  date.  He  says  he  had  no 
knowledge  after  the  suspension  of  the  bank  and  prior  to  the  taking 
of  the  note  that  Moore  &  Co.  had  dissolved  partnership,  that  the 
note  was  signed  and  delivered  to  him  by  Leroy  Moore,  and  there  was 
paid  to  plaintiff  by  Leroy  Moore  $500,  January  9,  1892,  and  that  at 
that  time  he  had  no  notice  of  the  dissolution  of  the  firm.  On  the 
cross-examination  he  testified  that  he  knew  the  firm  Leroy  Moore  & 
Co.  from  the  time  the}r  started  business  in  Greenville  until  thej'  sus- 
pended payment,  and  at  times  was  a  borrower  of  them;  at  the  time 
of  the  suspension  he  was  a  creditor;  that  they  carried  on  no  busi- 
ness in  Greenville  but  the  banking  business;  that  plaintiff  was  a 
lumberman,  and  handled  a  good  many  thousands  of  dollars  each  year 
through  the  bank  of  Leroy  Moore  &  Co. ;  that  their  business  was 
carried  on  at  the  corner  of  Cass  and  Lafayette  streets  in  Greenville; 
that  they  closed  their  doors  permanently  in  June  or  July,  1884,  and 
has  no  recollection  of  their  opening  again,  or  of  their  doing  business. 


368  powers  or  partners.  [chap.  iv. 

after  that.  He  further  testified  that  this  banking  firm  was  succeeded 
by  the  City  National  Bank  of  Greenville  in  the  summer  of  1884, 
which  bank  occupied  the  place  of  business  formerly  occupied  by 
Leroy  Moore  &  Co.  Plaintiff  kept  an  account  and  made  his  col- 
lections through  the  City  National  Bank,  of  which  Moore  was  first 
cashier,  and  then  president;  that  after  Moore  became  president  he 
had  active  charge  of  the  affairs  of  the  City  National  Bank,  and  spent 
practically  all  of  his  time  with  it,  and  that  the  City  National  Bank 
continued  to  do  business  in  the  same  rooms  formerly  occupied  by 
Leroy  Moore  &  Co.  until  1893,  when  it  suspended.  He  further  tes- 
tified that  prior  to  1884  Leroy  Moore  &  Co.  had  a  sign  on  their 
banking  place  during  the  entire  time  they  were  in  business,  reading 
"  Leroy  Moore  &  Co."  When  the  City  National  Bank  occupied  the 
rooms  the  sign  "  City  National  Bank  "  was  put  up,  and  the  sign 
"■Leroy  Moore  &  Co."  disappeared;  and  that  the  note  in  suit  was 
the  only  note  he  ever  had  for  his  deposit.  He  further  testified  it  was 
well  known  that  Leroy  Moore  &  Co.,  after  the  suspension,  were  not 
doing  any  business  in  Greenville  except  liquidating  their  old  indebted- 
ness, which  was  attended  to  by  Leroy  Moore.  He  further  testified 
on  the  direct  examination  that  when  the  committee  met  with  Moore 
and  Tolbert  in  June,  1884,  it  was  arranged  that  Mr.  Moore  would 
continue  in  charge  of  the  business  of  the  firm  collecting  the  accounts 
and  liquidating  the  debts.  No  time  was  specified  or  agreed  upon 
within  which  this  was  to  be  done,  but  the  understanding  was  they 
were  to  pay  the  debts  in  full.  It  does  not  appear  from  the  testimony 
of  the  plaintiff  that  he  ever  talked  with  Mr.  Tolbert  after  this  meet- 
ing in  June  or  July,  1884.  Mr.  Tolbert  denied  the  material  state- 
ments contained  in  the  plaintiff's  testimony.  He  denied  that  after 
the  bank  suspended  he  ever  authorized  Moore  to  give  notes  of  the 
firm  for  any  indebtedness,  either  old  or  new,  and  that  he  had  no 
knowledge  of  the  giving  of  the  note  in  controversy,  or  of  the  payment 
of  $500  made  upon  it,  until  shortly  before  the  suit  was  brought. 

Giving  the  testimony  of  the  plaintiff  the  most  favorable  construc- 
tion possible,  the  questions  involved  are:  First.  Did  the  suspension 
of  the  bank  dissolve  the  partnership?  Second.  After  the  dissolu- 
tion of  the  partnership,  was  Leroy  Moore  authorized  to  give  the  note 
of  the  firm  for  the  debt  of  the  firm  which  existed  at  the  time  of  the 
suspension?  The  evidence  is  too  plain  for  controversy  that  the  firm 
of  Leroy  Moore  &  Co.  ceased  to  do  a  banking  business  in  Greenville 
in  June  or  July,  1884,  and  that  plaintiff  knew  of  it.  The  law  is 
pretty  well  settled  that  a  partnership  is  dissolved  when  it  ceases  to 
do  the  business  for  which  it  was  organized.  3  Kent,  Comm.  (13th 
ed.)  62;  Pars.  Partn.  (3d  ed.)  416;  Spurck  v.  Leonard,  9  111.  App. 
174;  Bank  v.  Page,  98  111.  109;  Ligare  v.  Peacock,  109  111.  94. 

As  to  the  second  question.  It  has  long  been  settled  in  this  State 
that  the  partner  who  is  intrusted  with  the  settlement  of  partnership 
affairs  is  not  authorized,   after  the  dissolution  of  the  partnership, 


§  3.]  POWERS    OF   A    PARTNER    AFTER    DISSOLUTION.  309 

to  give  notes  in  settlement  of  partnership  debts,  in  the  absence  of 
authority  conferred  upon  him  by  the  other  partners  to  do  so.  The 
liabilities  of  the  partners  might  be  greatly  increased,  and  their  rights 
greatly  impaired,  if  the  partner  who  is  settling  the  partnership  affairs 
may  make  partnership  paper,  which  is  payable  a  long  time  in  the 
future,  without  being  authorized  to  do  so.  It  was  assumed  in  Bank 
v.  Kercheval,  2  Mich.  506,  that  the  law  was  well  settled  that  no  such 
implied  authority  existed.  In  Smith  v.  Shelden.  35  Mich.  42,  it  was 
said:  "We  think  it  much  safer  to  require  express  authority,  when 
such  obligations  are  contemplated,  than  to  leave  one  party  at  liberty 
to  execute  at  discretion  new  contracts  of  this  nature,  which  may  post- 
pone for  an  indefinite  period  the  settlement  of  their  concerns,  when  a 
settlement  is  the  very  purpose  for  which  he  is  to  act  at  all."  Atwood 
r.  Gillett,  2  Doug.  (Mich.)  206;  Pennoyer  v.  David,  8  Mich.  407; 
Matteson  v.  Nathanson,  38  Mich.  377;  Jenness  v.  Carleton,  40  Mich. 
343;  Carleton  v.  Jenness,  42  Mich.  110;  Goodspeed  v.  Plow  Co.,  45 
Mich.  237;  Johnson  u.  Emerick,  70  Mich.  215.  The  record  discloses 
an  entire  absence  of  authority  conferred  by  Mr.  Tolbert  upon  Mr. 
Moore  to  sign  notes  for  the  firm  after  the  dissolution  of  the  partner- 
ship. There  is  also  no  proof  of  authority  to  make  the  $500  payment 
which  had  the  effect  of  taking  the  note  out  from  the  running  of  the 
statute  of  limitations.  As  the  case  stood  when  the  proofs  were 
closed,  the  jury  should  have  been  instructed  to  return  a  verdict  for 
the  defendant,  Tolbert. 

Judgment  is  reversed,  and  a  new  trial  ordered. 


WOOD   et  al.    y.    BRADDICK. 

1  Taunt.  104.     1808. 

This  was  an  action  brought  to  recover  from  the  defendant  the  pro- 
ceeds of  certain  linens,  which  the  bankrupts,  in  the  year  1796,  had 
consigned  for  sale  in  America,  as  the  plaintiffs  alleged,  to  the  defendant 
jointly  with  one  Cox,  who  was  then  his  partner,  but,  as  the  defendant 
contended,  to  Cox  only.  The  defendant  pleaded  the  general  issue,  and 
the  statute  of  limitations.  At  the  trial  at  Guildhall,  before  Mansfield, 
C.  J.,  the  plaintiffs  produced  in  evidence  a  letter  from  Cox,  dated  the 
24th  of  June,  1804,  stating  a  balance  of  £919  to  be  then  due  to  the 
bankrupts  upon  this  consignment. 

It  was  in  proof  that  on  the  30th  of  July,  1802,  Braddick  and  Cox 
dissolved  their  partnership,  as  from  the  17th  of  November,  1800. 

Cockell  and  Lens,  Serjts.,  objected  that  this  letter,  being  written 
after  the  dissolution  of  the  partnership,  was  not  admissible  evidence  to 
charge  Braddick.  The  Chief  Justice  overruled  the  objection,  but  re- 
served the  point :  and  the  jury  being  of  opinion  that  the  agency  was  under- 
taken by  Cox  on  the  partnership  account,  found  a  verdict  for  the  plaintiff. 

'J  J 


370  POWERS    OF    PARTNERS.  [CHAP.  IV. 

Cockell,  Serjt.  now  moved  for  a  new  trial. 

Mansfield,  C.  J.  Clearly  the  admission  of  one  partner,  made  after 
the  partnership  has  ceased,  is  not  evidence  to  charge  the  other  in  any 
transaction  which  has  occurred  since  their  separation  ;  but  the  power 
of  partners  with  respect  to  rights  created  pending  the  partnership 
remains  after  the  dissolution.  Since  it  is  clear  that  one  partner  can 
bind  the  other  during  all  the  partnership,  upon  what  principle  is  it  that 
from  the  moment  when  it  is  dissolved  his  account  of  their  joint  con- 
tracts should  cease  to  be  evidence  ?  —  and  that  those  who  are  to-da}'  as 
one  person  in  interest  should  to-morrow  become  entirely  distinct  in 
interest  with  regard  to  past  transactions  which  occurred  while  they  were 
so  united  ? 

Heath,  J.  Is  it  not  a  very  clear  proposition,  that  when  a  partner- 
ship is  dissolved  it  is  not  dissolved  with  regard  to  things  past,  but  only 
with  regard  to  things  future  ?  With  regard  to  things  past,  the  partner- 
ship continues,  and  always  must  continue. 

Cockell  took  nothing  by  his  motion. 


HART   v.    WOODRUFF  et  al. 

24  Hun  (N.  Y.),  510.     1881. 

Dykman,  J.  The  defendants  constituted  the  firm  of  Woodruff  & 
Robinson,  which  dissolved  on  March  1,  1875.  At  the  time,  the  firm 
was  indebted  to  the  plaintiff  for  money,  and  the  claims  rested  in 
account  on  the  defendants'  books.  By  the  articles  of  dissolution  the 
business  of  the  firm  was  to  be  liquidated  at  the  store  of  the  firm,  and 
all  the  partners  were  to  assist  in  such  liquidation  and  were  authorized 
to  sign  in  liquidation.  On  August  27,  1875,  by  direction  of  Robinson, 
one  of  the  defendants,  and  one  of  the  members  of  the  old  firm,  the 
account  was  made  out  and  sent  to  plaintiff.  (This  account  showed 
that  the  defendants  were  indebted  to  plaintiff  in  the  sum  of  $1,441.37.) 

The  plaintiff  and  one  Youngs  had  a  large  balance  of  money  with 
Woodruff  &  Robinson  at  one  time,  which  was  divided  on  their  books, 
part  going  to  the  credit  of  Youngs  and  part  to  the  credit  of  the  plain- 
tiff, and  forming  the  basis  of  this  account  rendered.  This  action 
was  commenced  in  the  summer  of  1880  on  the  account  as  a  stated 
account.  The  defendant  Woodruff  had  no  knowledge  of  the  account, 
and  did  not  authorize  it.  He  alone  defended.  The  only  proof  offered 
on  the  part  of  the  plaintiff  was  this  agreement  of  dissolution  and  the 
account  rendered;  and  the  court  directed  a  verdict  for  the  plaintiff, 
and  afterwards  refused  to  set  it  aside. 

The  question  then  presented  is,  whether  Robinson  had  power  to 
bind  Woodruff  by  stating  an  account  from  which  the  law  implies  an 
agreement  to  pay  the  amount  shown  to  be  due.     During  the  continu- 


§  3.]  POWERS   OF   A   PARTNER   AFTER   DISSOLUTION.  371 

ance  of  a  co-partnership  each  member  of  the  firm,  within  the  scope 
of  the  partnership,  is  deemed  the  authorized  agent  of  all  his  asso- 
ciates ;  but  this  presumed  agency  ceases,  for  most  purposes,  with  the 
termination  of  the  partnership,  and  only  continues  for  such  purposes 
as  are  necessary  in  winding  up  the  business  of  the  association. 
After  dissolution,  there  is  no  power  to  make  new  promises,  or  con- 
tracts, or  admissions  in  the  name  of  the  firm,  even  though  they  do  not 
increase  the  prior  obligation  of  the  partners.  The  only  power  there- 
after remaining  to  act  for  the  firm  is  to  sell  and  dispose  of  the  prop- 
erty, collect,  adjust,  and  pay  debts,  and  give  discharges  and  acquit- 
tances. Particularly,  is  it  well  settled  that  the  dissolution  of  a  firm 
annuls  the  power  of  the  respective  partners  to  contract  new  debts  or 
create  new  obligations  against  the  co-partnership. 

In  Hackley  v.  Patrick,  3  Johns.  538  (1808),  the  notice  of  dissolu- 
tion contained  a  statement  that  the  unsettled  business  of  the  firm 
would  be  adjusted  by  Hastie,  and  he  stated  and  acknowledged  a 
balance  of  account  due  from  the  firm  to  the  plaintiff,  and  yet  it  was 
held  that  such  admission  did  not  bind  his  co-partner;  and  the  court 
said:  "This  is  a  clear  case;  after  dissolution  of  co-partnership  the 
power  of  one  partner  to  bind  the  other  wholly  ceases.  There  is  no 
reason  why  his  acknowledgment  of  an  account  should  bind  his  co- 
partners any  more  than  his  giving  a  promissory  note  in  the  name  of 
the  firm,  or  any  other  act.  The  plaintiff  ought  to  have  produced  other 
evidence  of  the  debt;  the  acknowledgment  of  Hastie  alone  was  not 
sufficient  to  charge  Patrick."  In  Sanford  v.  Mickles,  4  Johns.  224, 
it  was  decided  that  one  partner,  after  dissolution,  cannot  indorse 
notes  or  bills  given  before  to  the  firm,  though  he  is  authorized  to 
settle  the  co-partnership  concerns.  In  Walden  v.  Sherburne,  15 
Johns.  409,  Patrick  v.  Hackley  was  approved,  even  against  a  con- 
trary decision  of  the  Court  of  Common  Pleas  in  England ;  and  it  was 
then  held  that  an  admission  by  one  partner,  after  dissolution,  of  a 
balance  due  from  the  firm,  does  not  bind  the  co-partners.  In  Baker 
v.  Stackpole,  9  Cow.  420,  the  Court  of  Errors  decided  unanimously 
that  the  admission  of  one  partner,  either  of  an  account  or  any  fact 
made  after  the  dissolution  of  the  partnership,  is  not  admissible  as 
evidence  to  affect  any  other  member  of  the  firm,  and  in  the  only 
opinion  delivered,  it  is  said:  "  A  distinction  was  attempted  upon  the 
argument  between  the  admission  of  an  account  and  the  admission  of 
a  fact;  but  I  can  perceive  none  in  principle."  All  of  these  cases 
received  the  approbation  of  the  Court  of  Appeals  in  the  celebrated 
case  of  Van  Keuren  v.  Parmelee,  2  N.  Y.  523,  and  it  was  then  said: 
"  Each  partner,  when  acting  within  the  scope  of  the  partnership,  is 
deemed  to  be  the  authorized  agent  of  all  his  fellows.  .  .  .  Now  how 
long  does  this  presumed  agency  continue?  Clearly  no  longer  than 
the  necessity  for  it  exists;  and  for  most  purposes  the  necessity 
ceases  with  the  existence  of  the  partnership.  When  that  is  dis- 
solved,   there   is   no  longer  any   ground   for   presuming  an    ageucy, 


372  POWERS    OF    PARTNERS.  [CHAP.  IV. 

except  as  to  such  things  as  are  indispensable  in  winding  up  the  con- 
cerns of  the  company.  If  there  be  no  agreement  to  the  contrary,  it 
may  be  presumed  that  each  partner  still  has  authority  to  dispose  of 
the  partnership  property,  to  collect,  adjust,  and  pay  debts,  and  give 
proper  acquittances.  But  there  is  no  ground  whatever  for  presum- 
ing a  power  to  make  new  promises  or  engagements  in  the  name  of 
the  firm,  even  though  they  only  change  without  increasing  the  prior 
obligations  of  the  partners."  These  words  are  sufficiently  applicable 
to  this  case  to  have  been  written  with  direct  reference  thereto. 

The  foregoing  examination  shows  that  neither  on  principle  nor 
authority  was  the  party  who  stated  this  account  authorized  to  involve 
Woodruff  thereby.  But  it  is  claimed  for  the  plaintiff  that  a  new 
authority  was  commuuciated  to  each  partner  by  the  provision  in  the 
articles  of  dissolution,  that  all  the  partners  were  to  assist  and  sign 
in  liquidation.  This  provision,  however,  bestowed  no  new  or  addi- 
tional authority  or  power.  The  use  and  repetition  of  the  word 
liquidate  in  these  articles  has  no  especial  significance.  The  plain 
intention  of  the  paper  was  to  confer  authority  on  each  partner  to 
wind  up  and  settle  up  the  old  business.  Precisely  that  they  all  had 
without  this  provision.  There  must  be  some  one  to  adjust  the  affairs 
of  the  concern,  by  collecting  its  debts,  and  disposing  of  its  property, 
and  dividing  the  proceeds  among  the  parties  entitled;  and  where,  as 
in  this  case,  none  of  the  parties  are  especially  empowered  for  this 
purpose,  to  the  exclusion  of  the  others,  the  individual  partners  retain 
the  same  authority  which  they  possessed  before  the  dissolution,  so 
far  as  it  may  be  necessary  for  such  purpose.  Robbins  v.  Fuller,  24 
N.  Y.  572.  To  the  same  effect  is  the  opinion  in  Gates  v.  Beecher, 
60  N.  Y.  525.  Our  conclusion,  therefore,  is,  that  the  statement  of 
the  account  was  an  admission  obligatory  only  on  the  partner  making 
the  same,  and  not  on  the  defendant  Woodruff;  and  that  the  admis- 
sion of  the  same  in  evidence  against  him  was  error,  for  which  the 
judgment  must  be  reversed. 


GATES   v.    BEECHER. 
60  N.  Y.  518.     1875. 

Action  by  the  indorsee  against  the  indorser  of  a  note  made  by  the 
firm  of  Bassett,  Beecher,  &  Co.  The  note  was  presented  for  payment 
by  a  notary  at  the  last  place  of  business  of  the  firm,  and  upon  the 
same  day  was  presented  personally  to  Bassett,  one  of  the  partners, 
and  demand  of  payment  made,  which  was  refused.  The  note  was 
thereupon  protested,  and  notice  thereof  was  duly  mailed  to  defendant. 

Judgment  for  plaintiff.     Defendant  appealed. 

F.   W.  Hubbard,  for  the  appellant. 

A.  21.  Beardsley,  for  the  respondent. 


§  3.]  POWERS    OF   A   PARTNER   AFTER   DISSOLUTION.  3  ,  3 

Folger,  J.  .  .  .  No  place  of  payment  was  named  in  the  note.  In 
such  case,  demand  of  payment  at  the  usual  place  of  business  of  the 
maker,  though  he  be  absent,  is  sufficient;  or  at  his  residence;  or  to 
him  in  person.  Haltz  v.  Boppe,  37  N.  Y.  63-1.  And  when  such  a 
note  is  made  by  a  partnership,  a  demand  of  one  of  the  partners  in  per- 
son, or  a  demand  at  the  usual  place  of  business  of  the  partnership, 
is  sufficient.  Story  on  Prom.  Notes,  §  239.  The  makers  of  the  note 
in  suit  were  partners,  and  it  was  made  by  them  as  such,  iu  their  part- 
nership name;  demand  of  payment  was  made  on  the  proper  day,  of 
one  of  them  in  person,  after  the  notary  had  on  the  same  day  gone  to 
the  last  usual  place  of  business  of  the  partnership,  for  the  purpose 
of  making  demand  there,  and  found  no  one  of  the  firm.  The  name 
of  the  firm  was  Bassett,  Beecher,  &  Co. ;  and  on  the  question  being 
asked  Bassett,  when  a  witness:  "When  did  Bassett,  Beecher,  &  Co. 
stop  business?"  he  replied:  "  They  were  thrown  into  bankruptcy  iu 
June,  1871."  I  think  that  we  may  infer  from  this  that  by  proceed- 
ings in  the  Bankrupt  Court  the  partnership  was  declared  bankrupt, 
and  its  effects  and  affairs  taken  charge  of  by  the  officers  of  the  law. 
The  partners  had  separated,  though  there  was  no  formal  dissolution 
of  their  partnership  by  them.  But  bankruptcy  of  one  member,  or 
of  all  the  members  of  a  firm,  works  a  dissolution  of  the  co-partner- 
ship. Story  on  Partn.  §  313.  On  this  state  of  facts  and  the  law,  it  is 
contended  by  the  learned  counsel  for  the  appellant,  that  the  demand 
for  payment  of  the  note  should  have  been  made  of  each  of  the  former 
partners.  He  cites  no  authority  for  his  position.  I  have  been  unable 
to  find  any.  If,  by  the  dissolution  of  the  partnership  by  bankruptcy, 
and  the  separation  of  the  partners,  they  must  thereafter  be  treated  as 
joint  makers  who  are  not  partners,  I  think  that  the  force  of  the 
authorities  is,  that  to  charge  an  indorser  of  their  note,  a  demand  must 
be  made  of  each  of  them,  save  where  the  other  circumstances  are  such 
as  to  excuse  a  demand.  For  to  charge  the  indorser  of  the  note  of 
joint  makers,  not  partners,  demand  must  be  made  on  each.  It  was 
so  held  in  Union  Bank  v.  Willis,  8  Met.  504.  In  Willes  v.  Green, 
5  Hill,  232,  Nelson,  C.  J.,  said  it  was  so  settled. 

It  is  seen,  therefore,  that  there  is  a  marked  distinction  taken  be- 
tween the  case  of  a  note  of  joint  makers  who  are  not  partners,  and  a 
note  of  partners  who  are  still  partners  at  the  maturity  of  the  note. 
That  distinction  rests  upon  the  fact  that  partners  are  but  one  person, 
in  legal  contemplation;  that  each  partner,  acting  in  such  capacity,  is 
not  only  capable  of  performing  what  all  can  do,  and  of  receiving  and 
paying  out  that  which  belongs  to  all,  but  by  such  acts  necessarily 
binds  them  all;  that  as  incident  to  such  joint  relations,  all  of  the 
partners  are  affected  by  the  knowledge  of  one.  These  things  do  not 
pertain  to  the  relation  of  joint  makers  who  are  not  partners.  Hence, 
while  a  demand  of  one  partner  is  equivalent  to  a  demand  of  all,  a 
demand  of  one  of  joint  makers  not  partners  is  not.  And  so  a  demand 
of  one  partner  is  sufficient  because  he  represents  the   firm,  and  a 


374  POWERS    OF   PARTNERS.  [CHAP.  IV. 

dishonor  by  one  is  a  dishonor  by  all,  and  each  is  presumed  to  have 
authority  to  act  for  the  others:  while  in  the  case  of  a  note  of  joint 
makers  not  partners,  the  indorser  has  a  right  to  rely  upon  the  respon- 
sibility of  all  and  each,  and  may  insist  upon  a  dishonor  by  each. 
Story  on  Prom.  Notes,  §  255.  So  that  the  inquiry  seems  to  be, 
whether  a  dissolution  of  a  partnership,  effected  by  bankruptcy,  has 
so  far  changed  the  relations  of  the  members  of  it,  as  that  the  act  or 
knowledge  of  one  does  not  affect  all  the  rest. 

Undoubtedly,    a   dissolution   of   a   partnership,    however   brought 
about,  puts  an  end  to  certain  of  the  joint  powers  and  authority  of  all 
the  partners.     Perhaps  it  may  be  said  that  no  one  of  the  partners  can 
do  any  act  inconsistent  with  the  primary  duty  of  winding  up  the 
whole  concerns  of  the  co-partnership.     This  is  emphatically  the  case 
when  the  dissolution  has  been  wrought  by  the  bankruptcy  of  the  firm, 
for  then  the  effects  thereof  have  passed  into  the  control  of  the  court, 
and  all  payments  therefrom,  or  chargeable  thereon,  are  to  be  in  the 
direction  of  the  court,  or  according  to  its  rules  and  practice.     The 
principle  on  which  a  partner,  during  the  existence  of  a  partnership, 
may  by  his  act  bind  his  co-partners,  is  that  which  governs  the  rela- 
tion of  principal   and  agent.     The  power  of   an  agent  to  bind  his 
principal  ceases  when  the  agency  is  ended;  so  that  even  payment  by 
a  former  agent  of  a  valid  debt  against  his  former  principal  gives  him 
no  right  against  the  latter.     The  principle  has  not,  however,  been 
carried  so  far  in  the  case  of  a  co-partner.     His  relations  with  the 
other  members  of  the  firm  have  not  been  entirely  severed.     He  may, 
from  his   own  means,   pay  a  valid  subsisting  debt  of  the  co-part- 
nership,   and  have  the  right  to  claim   an  allowance  thereof  on  the 
settlement  of  the  affairs,  or  contribution  from  the  others.     Major  v. 
Hawkes,  12  111.  298.     And  a  general  statement  has  been  made  by  a 
text-writer  of  repute,  that  every  act  of  administration  which  is  neces- 
sary for  winding  up  the  concern  may  be  effectually  done  by  one  part- 
ner', and  the  rest  be  bound.     2  Bell,  Comm.  Bk.  7,  c.  2,  p.  643,  5th  ed. 
And  the  author  expressly  includes  in  this  a  case  of  dissolution  by 
bankruptcy,  though  it  is   apparent  that  the  property  of  a  bankrupt 
concern   may  not  be   meddled  with  by  one  of  its  former  members. 
But  it  is  clear  that  the  relations  of  the  individual  members  of  the 
firm  are  not,  by  a  dissolution  thereof,  so  completely  severed  as  that 
no  act  of  one  can  have  any  effect  upon  the  others.     Robbins  v.  Fuller, 
24  N.  Y.  570.     Each  and  all  have  still  an  interest  in  the  settlement 
of  the  affairs  of  the  firm,  in  the  payment  of  its  debts,  and  the  adjust- 
ment of  the  liability  of  each  to  it  and  to  each  other,  and  in  the  just 
division  of  any  surplus.     Though  the  co-partnership  be  insolvent,  as 
in  this  case,  and  it  be  declared  bankrupt,  the  members  individually 
may  be  solvent,  and  liable  to  be  affected   by  the  final  result  of  the 
bankruptcy  proceedings.     And  so  there  does,  after  a  dissolution,  still 
continue  that  common  interest  in  past  transactions,  and  in  the  present 
and  future  legitimate  consequences  therefrom,  as  that  a  joint  power 


§  3.J  POWERS   OF   A    PARTNER   AFTER    DISSOLUTION.  375 

and  authority  iu  relation  thereto  continues:  and  while,  after  dissolu- 
tion, no  member  of  the  late  firm  can  by  his  act  create  a  new  liability 
against  his  former  co-partners,  or  bind  them  to  an  alleged  lia- 
bility, Hackley  v.  Patrick,  3  J.  R.  536,  or  revive  an  extinct  one,  Van 
Keuren  v.  Parmelee,  2  N.  Y.  523,  he  may  do  some  acts  which  shall 
affect  and  be  binding  upon  them,  when  such  acts  are  confined  to  mat- 
ters in  which  they  all  still  have  a  common  interest  and  are  under  a 
common  liability.  Thus,  it  has  been  held  that  one  who  was  once  a 
member  of  a  dissolved  partnership  which,  in  his  lifetime,  had  indorsed 
a  note  in  the  firm  name,  might,  after  dissolution,  waive  demand  of 
payment  and  notice  of  non-payment,  Darling  r.  Maret,  22  Me.  184, 
which  decision  was  put  upon  the  principle  that,  though  dissolution 
revoked  all  power  to  make  a  new  contract,  it  did  not  revoke  the 
authority  to  arrange  those  before  created  and  yet  subsisting.  And 
it  being  so,  that  the  act  of  one  of  former  partners,  in  relation  to  a 
valid  subsisting  liability  of  the  late  firm,  does  affect  the  others,  and 
is  taken  as  their  act,  and  his  knowledge  thereof  as  their  knowledge, 
there  seems  no  reason  why  the  refusal  of  one  to  pay,  on  demand,  a 
note  of  the  partnership,  should  not  be  deemed  to  be  the  refusal  of  all, 
and  all  be  chargeable  therewith.  And  then,  a  demand  of  payment 
made  to  one  is  a  demand  of  payment  made  to  all,  and  is  sufficient 
upon  which  to  give  notice  of  non-payment  to  their  indorser. 

And  further,  iu  aid  of  this  idea,  it  is  to  be  remembered  that  the  con- 
tract of  the  indorser  of  the  promissory  note  of  a  co-partnership  is  that 
he  will  pay  if  the  co-partnership  does  not,  while  that  of  the  indorser  of 
the  note  of  joint  makers  is,  that  he  will  pay  if  neither  of  them  does. 
One  joint  maker,  not  a  partner  of  the  other,  may  not  be  able  to  speak 
for  the  other  as  to  his  ability  or  disposition  to  protect  his  promise 
and  to  save  his  indorser  from  liability,  while  one  partner,  though  the 
firm  has  been  dissolved,  is  supposed  to  know  and  care  as  much  as  the 
other  of  its  ability  and  willingness  in  these  respects.  Again,  the  pur- 
pose of  demand  and  notice  to  the  indorser  is  that  he,  being  informed 
of  the  failure  to  pay  by  the  co-partnership,  may  be  put  at  once  on  his 
guard,  to  save  himself,  if  may  be,  from  loss.  This  end  is  achieved 
when  one  of  former  partners  has  refused  to  pay,  as  when  all  have. 

Taking  all  the  reasons  for  the  distinction  made  by  the  law,  between 
the  case  of  a  note  of  joint  makers  who  are  partners,  and  of  that  of 
joint  makers  who  are  not  partners,  and  all  the  reasons  for  requiring  a 
demand  of  payment  of  the  maker,  and  notice  thereof,  and  of  refusal 
to  the  indorser,  in  order  to  charge  him,  we  are  of  the  opinion  that  the 
rule  that  a  demand  of  one  co-partner  is  sufficient,  applies  as  well 
when  the  partnership  has  been  dissolved,  as  when  it  has  not.  It  fol- 
lows that  the  demand  of  payment  in  this  case  was  sufficient.  We 
find  that  this  view  is  sustained  in  brief  opinions  in  Barry  v.  Crowley, 
4  Gill,  194;  Brown  v.  Turner,  15  Al.  832.  .  .  . 

Judgment  affirmcil.1 

1  Portions  of  the  opinion,  not  bearing  upon  the  law  of  partnership,  havo  been  omitted. 


CHAPTEE  V. 
rights  and  remedies  of  creditors. 

§  1.  Firm  Creditors  at  Law. 

HAMSMITH  v.  ESPY  et  al. 
13  la.  439.     1862. 

Hamsmith  commenced  his  action  against  "Thomas  S.  Espy,  Charles 
Baker,  and  John  Robinson,  doing  business  as  partners,  in  the  name 
and  style  of  Espy,  Baker,  &  Robinson,"  upon  a  note  made  in  the  co- 
partnership name.  After  judgment  against  "  defendants,"  the  cause 
was  brought  into  this  court,  and  at  the  June  Term,  1861,  a  judgment 
was  rendered  against  them  in  their  individual  names,  as  well  their 
sureties  on  the  appeal  bond.  An  execution  was  issued,  and  levied 
upon  two  lots  in  Fort  Madison,  one  of  them  belonging  to  the  firm,  and 
the  other  the  individual  property  of  Esp}-,  who  now  moves  to  set  aside 
this  sale  of  his  lot,  by  showing  that  there  was  other  firm  property,  of 
which  the  sheriff  and  all  persons  at  the  sale  had  notice,  amply  sufficient 
to  satisfy  the  writ,  and  which  was  pointed  out  to  him  before  the  levy. 

Thomas  S.  Esjyy,  for  the  motion. 

J.  31.  -Beck,  contra. 

Wright,  J.  We  are  aware  of  the  rule  in  equity,  that  partnership 
property  should  pay  firm  debts,  and  individual  property  individual 
debts.  But  suppose  a  judgment  is  rendered  against  persons  composing 
a  firm,  in  their  individual  names,  if  individual  property  is  sold  under 
an  execution  issued  thereon,  is  the  sale  invalid,  though  there  may  be 
partnership  means?  We  think  not.  The  judgment  is  several,  the 
writ  runs  against  defendants,  as  individuals.  No  step  further  is  neces- 
sary in  the  first  instance  (as  by  scire  facias,  or  the  like),  to  make 
individual  property  liable,  and  it  is  not  irregular  to  levy  and  sell  that 
which  the  writ  commands  the  officer  to  seize.  By  his  writ,  he  does 
not  know  of  a  joint  liability,  and  his  simple  duty,  primarily,  is,  to 
make  the  money  from  the  property  belonging  to  either  of  the  defend- 
ants named.  A  creditor  of  either  might,  in  a  proper  case,  in  equity, 
by  a  showing  of  all  the  facts,  compel  a  resort  to  the  partnership  assets. 
But  if  this  is  not  done,  the  individual  debtor  cannot  complain  of  the 
illegality  of  the  sale. 

Our  Code  changes  the  common  law,  in  providing  that  a  partnership 
may  be  sued  in  its  firm  name.  If  thus  sued,  a  scire  facias  is 
necessary,  in  order  to  reach  individual  property.  If,  however,  a  plain- 
tiff follows,   as  he  may,  the  common  law  requirement,  of  giving  the 


§  1.]  FIRM   CREDITORS   AT   LAW.  377 

individual  names,  and  thus  serving  and  suing  all,  he  ma}*  take  the 
property  of  either  partner  in  satisfaction  of  his  writ.  In  such  a  ease  a 
scire  facias  is  not  necessary.  Motion  refused. 

Lowe,  J.,  dissenting. 


STEVENS   v.   PERRY  et  al. 
113  Mass.  380.     1S7:3. 

Trustee  process.  The  writ  commanded  the  officer  "  to  attach  the 
goods  or  estate  of  John  R.  Perry  and  Patrick  Grimes,  co-partners  under 
the  name  and  style  of  Perry  &  Grimes,"  and  to  summon  the  Bay  State 
National  Bank  as  trustee. 

The  corporation  filed  this  answer:  "And  now  comes  the  Bay  Stace 
National  Bank,  and,  for  answer,  say,  that  the}-  had  in  their  hands  and 
possession,  at  the  time  of  the  service  of  the  plaintiff's  writ  upon  them, 
no  goods,  effects,  or  credits  of  the  said  firm  of  Perry  &  Grimes,  the 
defendants,  and  of  this  the}-  submit  themselves  to  be  examined  on  oath, 
and  ask  to  be  discharged.  And  for  a  farther  answer,  they  say  that,  at 
the  time  of  the  service  of  said  writ  upon  them,  to  wit,  on  the  ninth 
day  of  Ma}',  1872,  they  had  in  their  hands  and  possession,  of  the 
individual  goods,  effects,  and  credits  of  said  John  R.  Pern',  one  of 
said  firm,  the  sum  of  $922.77,  but  that  since  said  service,  to  wit,  on 
the  twenty-third  day  of  said  May,  said  individual  effects  of  said  Perry 
have  been  attached  to  the  amount  of  $1,800,  on  a  writ  sued  out  of  this 
court  and  returnable  at  the  September  Term  thereof,  wherein  the 
Swampscott  Machine  Company  is  plaintiff,  said  John  R.  Perry  is 
defendant,  and  said  bank  is  made  trustee.  "Wherefore  they  ask  to  be 
discharged,  and  of  this  they  submit  themselves  to  be  examined  on 
oath." 

The  corporation  appealed  from  an  order  charging  it  as  trustee  upon 
this  answer. 

C.  U.  Bell,  for  the  trustee. 

A.  R.  Brown  and  E.  A.  Alger,  for  the  plaintiff. 

Ames,  J.  It  is  well  settled  as  matter  of  law  in  this  Commonwealth, 
that,  in  a  suit  against  two  or  more  co-partners  upon  their  joint  debt, 
the  separate  property  of  any  one  of  the  partners  may  be  attached,  and 
the  lien  so  acquired  is  not  discharged  or  impaired  by  a  subsequent 
attachment  of  the  same  property  upon  a  suit  in  favor  of  a  separate 
creditor  of  the  same  partner.  Allen  v.  Wells,  22  Pick.  450  ;  New- 
man v.  Bagley,  1G  Pick.  570.  The  Supreme  Court  of  New  Hampshire 
has  in  several  cases  held  otherwise.  Jarvis  v.  Brooks,  23  N.  II.  13G  ; 
Bowker  v.  Smith,  48  N.  II.  111.  But  we  must  consider  ourselves 
bound  by  our  own  decisions.  As  the  debt  due  from  the  partners  jointly 
is  also  due  from  each,  it  may  be  enforced  against  the  separate  property 
of  each.    It  is  immaterial  whether  this  separate  property  is  in  the  form 


378  EIGHTS    AND   REMEDIES  "OF   CREDITORS.  [dlAP.  V. 

of  goods  and  movable  chattels,  or  goods,  effects,  and  credits  intrusted 
and  deposited  in  such  a  manner  that  they  can  only  be  attached  upon  a 
trustee  process.  It  is  not  necessary  that  the  principal  debtors  should 
have  made  a  joint  deposit,  or  that  the  fund  should  belong  to  them 
jointly.  It  is  enough  if  funds  attachable  upon  a  trustee  process  are 
due  from  the  alleged  trustee  to  either  one  of  the  principal  defendants. 

Trustees  charged. 


JAFFRAY  et  al.   v.   JENNINGS    et  al. 

101  Mich.  515:  60  N.  W.  52.     1894. 

Hooker,  J.  Plaintiffs  were  co-partners,  residing  in  New  York,  and 
were  jobbers,  of  whom  the  defendants  (father  and  son,  and  also  part- 
ners) purchased  goods.  The  son,  Ward  L.  Jennings,  having  purchased 
a  quantity  of  goods  for  his  firm  from  the  plaintiffs,  the  latter  com- 
menced proceedings  by  attachment  upon  an  affidavit  which  alleged  that 
the  defendants  fraudulently  contracted  the  debt  upon  which  the  action 
was  brought,  viz.,  that  arising  from  the  purchase  mentioned.  The  writ 
was  levied  upon  property  belonging  to  the  father,  and  upon  his  appli- 
cation the  attachment  was  dissolved  by  the  circuit  judge.  It  was  ad- 
mitted that  at  the  time  of  the  levy  the  firm  had  sufficient  personal 
property  out  of  which  the  claim  could  have  been  satisfied. 

Defendants'  contention  is  that  the  individual  property  of  the  inno- 
cent defendant  was  not  subject  to  seizure  by  attachment.  Counsel  for 
the  plaintiffs  build  a  strong  argument  upon  the  doctrine  that  each  part- 
ner is  an  agent  of  his  fellows,  citing  May  v.  Newman,  95  Mich.  501, 
to  the  proposition  that  an  attachment  lies  against  a  debtor  whose  agent 
fraudulently  contracted  the  debt.  But  the  statute  upon  which  the 
remedy  b}-  attachment  depends  has  relieved  the  innocent  partner  from 
the  application  of  this  rule.  An  examination  of  the  statutes  may  aid 
in  solving  this  question.  We  start  with  the  proposition  that  "attach- 
ment is  a  harsh  and  extraordinary  remedy,  unknown  to  the  common 
law  ;  and  the  statutory  provisions  upon  which  the  right  depends,  being 
in  derogation  of  the  common  law,  must  be  strictly  construed,  and 
cannot  be  extended  be3"ond  their  terms."  See  cases  cited  in  1  Jac.  & 
C.  Dig.  p.  96,  §  1  ;  Estlow  v.  Hanna,  75  Mich.  219. 

An  action  against  joint  debtors  is  like  an}'  other  action.  It  is  aimed 
at  the  individual  debtors.  A  service  on  one  is  not  a  service  upon  the 
other ;  the}-  may  appear  separately ;  their  defences  may  be  different ; 
the  judgment  is  against  each  for  the  whole  amount ;  the  execution 
issues  against  the  individuals,  the  officer  being  commanded  to  collect 
the  debt  from  the  goods  and  chattels,  and,  for  want  thereof,  of  the 
lands  and  tenements  of  the  individuals.  And  this  is  as  true  where  the 
joint  obligation  is  a  partnership  debt  as  in  cases  where  the  debtors  are 
not  co-partners.     The  act  authorizing  proceedings  in  attachment  per- 


§  1.]  FIKM    CREDITORS    AT    LAW.  379 

mits  any  creditor  to  have  an  attachment  against  his  debtor,  upon  con- 
ditions mentioned.  The  conditions  are  that  he  shall  show  that  the 
defendant  —  i.e.  the  debtor  —  is  believed  to  be  guilty  of  certain  acts, 
or  to  possess  certain  intentions  regarding  the  debt  or  his  propert}-, 
fraudulent  in  character,  the  general  tenor  of  which  indicates  danger 
that  such  debtor  will  put  his  property  beyond  the  reach  of  the  creditor. 
The  law  lays  hold  of  the  property  of  such  debtor,  to  preserve  it  for  the 
creditor.  So  long  as  there  is  a  sole  debtor,  no  difficult}'  is  likely  to 
arise,  but  when  the  debt  is  joint  the  question  arises,  how  far  should  the 
fraudulent  acts  and  intentions  of  one  subject  the  property  of  another  to 
seizure?  The  acts,  if  strictly  construed,  only  provide  for  attachment 
against  the  debtor  who  is  guilt}"  of  the  fraud.  An  additional  remedy, 
summary  in  its  nature,  is  given  against  him.  It  is  given,  in  terms, 
against  no  others.  And  where  the  act  is  done  by  one  only,  the  law 
can  only  be  made  applicable  to  another  by  invoking  the  doctrine  of 
agency. 

No  one  will  question  the  fact  that  one  can,  through  an  agent,  subject 
his  property  to  attachment ;  and  this  is  as  true  where  the  agent  is  a 
partner  as  where  he  is  not,  and  where  the  act  complained  of  is  the 
fraudulent  purchase  of  goods  by  a  partner,  as  in  this  case.  There  is 
much  persuasiveness  in  the  argument  that,  as  the  firm  received  the 
benefit  and  appropriated  the  fruit  of  the  transaction  (whether  with 
knowledge  upon  the  part  of  both  or  not),  the  rule  that  a  partner  is  an 
agent  of  his  co-partners  makes  his  act  the  act  of  both.  It  would  not 
be  so  convincing  if  the  cause  for  attachment  were  another  of  those 
named  in  the  statute,  —  e.  g.,  if  one  only  was  shown  to  have  an  intent 
to  dispose  of  the  firm  property,  or  had  actually  done  so  without  the 
knowledge  of  his  partner,  or  where  he  absconded,  or  removed  out  of 
the  State,  or  was  about  to  do  so,  with  intent  to  defraud  the  firm  cred- 
itors. Still  more  hard  would  be  the  attachment  against  one  where  his 
co-partner  had  merely  resided  out  of  the  State  for  three  months,  which 
in  itself  is  ground  for  attachment,  regardless  of  the  honesty  of  his 
intention.  Can  it  be  said  that  in  all  of  these  cases  these  acts  are 
partnership  acts,  binding  the  partners  under  this  application  of  the 
doctrine  of  agency?  Is  it  true  that  the  creditors  of  a  firm  in  Michigan, 
one  of  the  members  of  which  lives  in  Chicago,  have  the  absolute  right 
to  commence  all  actions  against  the  firm  by  attachment,  and  to  levy  not 
only  on  the  firm  property,  but  that  of  each  resident  member,  as  well  as 
that  of  the  non-resident?  If  not,  it  must  be  that  this  doctrine  is  im- 
properly applied,  or  a  distinction  must  be  drawn  between  the  different 
causes  for  attachment  named  in  the  statute,  and  the  liability  limited  to 
those  acts  which,  we  may  say,  either  as  a  conclusion  of  fact  or  law,  are 
the  acts  of  the  firm,  which  would  seem  to  limit  the  cases  to  those  where 
the  debt  was  fraudulently  contracted,  and  where  the  property  of  the 
firm  had  been  assigned,  concealed,  or  disposed  of  with  intent  on  the 
part  of  one  to  defraud  the  firm  creditors.  If  plaintiffs'  theory  is  cor- 
rect, these  would  be  the  acts  of  all  partners,  and  subject  to  seizure  not 


380  EIGHTS   AND   EEMEDIES    OF   CEEDITOES.  [CHAP.  V. 

only  the  partnership  property,  but  the  individual  property  of  each 
partner,  no  matter  bow  honest,  and  notwithstanding  their  solvenc\\ 
There  can  be  no  doubt  that  partners  are  bound  by  the  contracts,  and 
many  times  by  the  torts,  of  one  of  their  number,  to  the  extent  of  liabil- 
ity. But  is  it  as  clear  that  the  nature  of  the  remedy  is  always  subject 
to  the  same  rule?  As  already  stated,  this  remedy  is  statutory,  and 
the  statutes  must  show  the  design  to  cover  such  cases  as  this,  or  they 
are  not  to  be  treated  as  within  them. 

The  attachment  statute  is  borrowed  from  New  York.  It  will  be 
found  in  the  Revised  Statutes  of  1838  and  1846  and  the  Compiled 
Laws  of  1857.  The  section  of  which  Howell  (section  8015)  is  an 
amendment  remained  unchanged  from  the  time  of  its  adoption  until 
1861.  It  is  section  19,  c.  1,  tit.  4,  pt.  3,  p.  512,  Rev.  St.  1838.  The 
same  is  found  in  Rev.  St.  1846,  §  30,  p.  517,  and  Comp.  Laws,  1857, 
§  4771.  It  reads  as  follows,  viz.  :  "  When  two  or  more  persons  are 
jointly  indebted  as  joint  obligors,  partners,  or  otherwise,  the  attach- 
ment may  be  issued  against  the  separate  or  joint  estates  or  property  of 
such  joint  debtors  or  any  of  them,  and  the  same  proceedings  shall  be 
had  as  hereinbefore  prescribed."  It  goes  without  saying  that  under 
this  act,  where  all  of  the  joint  debtors  are  shown  to  have  participated 
in  the  statutory  act,  or  where  it  appears  that  each  has  entertained  the 
fraudulent  intent,  the  writ  should  issue  against  all ;  and  it  is  as  plain 
that  in  such  case  the  writ  could  be  issued  against  the  separate  or  joint 
estates  of  the  debtors.  So  far  it  lays  down  a  plain,  consistent,  and  just 
rule.  Shall  we  go  further,  and  say  that  it  was  meant  that  the  writ 
would  be  as  far-reaching  in  cases  of  joint  debtors,  who  are  not  part- 
ners, where  one  was  innocent  of  wrong?  That  would  probably  not  be 
claimed  by  an}'  one.  As  to  partners,  the  same  claim  might  be  made 
as  is  made  here,  viz.,  that  in  dealing  with  the  partnership  property  the 
act  of  one  is  the  act  of  all,  and  that  the  consequences  are  the  same  to 
all.  But  this  act  had  received  a  construction  before  it  became  a  law  in 
Michigan.  In  the  Case  of  Cyrus  Chipman,  an  absconding  debtor,  14 
Johns.  217,  decided  in  1817,  it  was  held  that  the  attachment  might 
issue  against  the  property  of  one  of  several  partners  who  absconds,  for 
a  debt  due  b}'  the  firm,  although  his  co-partners  are  resident  within  the 
State,  and  subject  to  process.  This  is  not  conclusive  of  the  question 
here,  and  is  cited  only  to  show  that  counsel  in  that  case  did  not  resort 
to  the  remed}r  by  attachment  agaiust  all  of  the  partners.  Two  }-ears 
later  the  same  court  held  that  an  attachment  might  issue  agaiust  the 
separate  property  of  an  absconding  debtor  upon  a  debt  due  from  his 
co-partnership.  Here,  again,  the  writ  appears  not  to  have  been  sought 
against  the  partners  who  remained.  But  the  case  went  further,  and 
held  that  the  partnership  property  could  not  be  seized ;  and  the  reason 
was  that  the  other  partner  had  a  right  to  retain  it  to  pay  the  partner- 
ship debts.     Ex  parte  Smith,  16  Johns.  102. 

It  may  still  be  said  that  in  neither  of  these  cases  were  all  of  the 
partners  sued  in  attachment,  and  therefore  there  yet  remains  doubt  if 


? 


1.]  FIRM    CREDITORS   AT   LAW.  381 


the  right  contended  for  does  not  exist  under  this  statute,  and  it  is 
probable  that  such  doubts  led  to  the  amendment  of  18G1,  which  reads 
as  follows:  "  When  two  or  more  persons  are  jointly  indebted  as  joint 
obligors,  partners,  or  otherwise,  and  an  affidavit  shall  be  made,  as  pro- 
vided in  section  two  of  this  chapter,  so  as  to  bring  one  or  more  of  such 
joint  debtors  within  its  provisions,  and  amenable  to  the  process  of 
attachment,  then  the  writ  of  attachment  shall  issue  against  the  prop- 
erty and  effects  of  such  as  are  so  brought  within  the  provisions  of  said 
section  ;  and  the  officer  shall  be  also  directed  in  said  writ  to  summon 
all  such  joint  debtors  as  maybe  named  in  the  affidavit  attached  thereto, 
to  answer  to  the  said  action  as  in  other  cases  of  attachment."  Before 
discussing  the  statute  let  us  review  the  situation.  Under  the  previous 
statute,  attachment  lay  against  all  joint  debtors,  whether  partners  or 
not.  where  it  could  be  shown  as  matter  of  fact  that  all  participated 
in  the  act  constituting  a  cause.  It  was  also  plain  that,  where  one 
joint  debtor  only  committed  such  act,  his  property  only  was  subject  to 
the  writ,  unless  there  was  a  partnership.  There  was,  then,  no  neces- 
sity for  legislation  to  reach  either  of  these  cases,  for  joint  debtors, 
where  not  partners,  were  fully  protected  where  innocent  of  wrong,  and 
the  creditor  had  his  remedy  against  both  where  both  participated,  and 
against  the  offender  where  only  one  was  guilty.  In  this  condition  of 
affairs,  the  legislature  passed  section  8015,  thereby  giving  immunity 
from  attachment  to  joint  debtors,  including  partners,  who  were  not 
themselves  participants  in  the  wrongful  act.  Now,  by  a  construction 
of  this  act,  it  is  sought  to  say  that  partners  are  not  within  its  terms, 
because  the  act  of  one  is  the  act  of  all,  and  that,  as  a  matter  of  law, 
the}-  are,  therefore,  all  participants  in  the  fraudulent  act.  If  that  is  so, 
the  statute  seems  to  have  no  office  to  perform.  It  has  relieved  nobody. 
Joint  debtors,  not  partners,  could  not  be  attacked  by  attachment  before 
unless  guilt}-.  But  there  may  have  been  a  doubt  about  partners.  That 
doubt  seems  to  have  caused  the  enactment  of  a  law  whose  only  object 
must  have  been  to  reach  and  relieve  the  very  class  of  cases  which  the 
construction  contended  for  seeks  to  exclude  from  its  protection. 

As  said  at  the  outset,  attachment  is  a  harsh  and  extraordinary 
remedy.  The  law  may  well  restrict  its  use,  and  deny  it  as  against  all 
honest  persons,  though  the}-  have  the  misfortune  to  be  connected  in 
business  as  partners  with  dishonest  persons.  Such  persons  have  legal 
obligations  to  discharge  in  relation  to  the  partnership  affairs.  They 
inust  see  that  obligations  are  discharged,  and  the  law  presumes  that 
they  will  faithfully  do  so.  No  very  good  reason  suggests  itself  why 
the  private  fortune  of  an  honest  partner  should  be  seized  because  his 
partner  has  been  detected  in  a  fraudulent  act  in  connection  with  part- 
nership affairs.  It  is  common  knowledge  that  few  men  or  firms  can 
survive  an  attack  by  attachment.  It  is  the  almost  certain  precursor  ot 
insolvency,  as  in  former  days  it  was  of  bankruptcy,  and  we  should 
hesitate  before  broadening  the  scope  of  the  act  in  question.  A  case 
quite  similar  to  the  present  was  before  the  court,    viz.,  Edwards  v 


382  EIGHTS   AND    KEMEDIES    OF   CREDITOKS.  [CHAP.  V. 

Hughes,  20  Mich.  290.  Mr.  Justice  Cooley  wrote  the  opinion,  and 
seems  to  have  taken  a  similar  view  of  these  statutes  to  that  expressed 
above.  It  is  true  that  the  facts  in  that  case  ma}r  permit  it  to  be  dis- 
tinguished from  the  present,  but  the  language  used  is  broad,  and  it  is 
hardly  possible  that  the  court  could  have  overlooked  the  contingency 
of  such  cases  as  this.  Since  this  decision  we  think  the  bar  have  un- 
derstood that  the  liability  was  limited  to  such  partners  as  personally 
participated  in  the  fraudulent  act.  See  Tiffany's  Justice  Guide,  p.  60, 
note  1,  where  this  doctrine  is  laid  down  ;  Shinn,  PL  &  Pr.  §  807.  See 
also  People  v.  Circuit  Judge,  41  Mich.  326,  where  a  writ  issued  against 
non-resident  partners  only.  We  think  the  learned  circuit  judge  correct 
in  his  conclusions,  and  that  his  order  dissolving  the  attachment  should 
be  affirmed,  witli  costs. 

Ordered  accordingly. 
Long  and  Grant,  JJ.,  concur  with  Hooker,  J.1 


YERKES   v.    McFADDEN  et  al. 
141  N.  Y.  136.     1894. 

This  action  was  brought  against  defendants,  who  were  non-resi- 
dents, as  co-partners,  to  recover  rent  due,  etc.,  under  a  lease.  On 
August  1,  1892,  an  order  was  obtained  for  service  of  the  summons  by 
publication,  and  on  August  15,  1892,  a  warrant  of  attachment  was  pro- 
cured and  a  levy  made  thereunder  upon  firm  property.  The  publica- 
tion of  the  summons  was  commenced  during  the  first  week  of  August 
in  two  newspapers,  and,  as  directed  by  the  order,  continued  for  six 
weeks  in  one,  but  in  the  other,  by  mistake  of  the  printer,  was  discon- 
tinued after  a  publication  for  five  weeks;  but  after  an  interval  of  two 
weeks,  upon  discovery  of  the  mistake,  it  was  renewed  and  directed  to 
be  continued  six  weeks.  On  August  26,  the  summons  was  personally 
served  upon  one  of  the  defendants,  but  no  personal  service  was  made 
on  the  other  two.  The  Special  Term  denied  a  motion  by  defendants 
to  vacate  the  attachment;  this  order  was  reversed  by  the  General  Term, 
and  plaintiff  appealed  to  this  court. 

John  M.  Roe,  for  appellant. 

0.  P.  Hurd,  for  respondent. 

Andrews,  Ch.  J.  We  think  the  General  Term  erred  in  vacating 
the  attachment  as  to  the  two  appellants  in  that  court,  although 
publication  was  not  commenced  against  them  within  the  prescribed 
period.  The  action  was  upon  a  joint  liability  of  the  three  defend- 
ants. Personal  service  was  made  on  the  third  defendant,  August  26, 
1892,  thirteen  days  after  the  warrant  of  attachment  was  granted,  and 

1  The  dissenting  opinion  of  Montgomery,  J.,  in  which  McGrath,  C.  J.,  concurred, 
is  omitted. 


§  1.]  FIRM    CREDITORS   AT   LAW.  383 

the  attachment  was  levied  upon  the  joint  property  of  the  firm.  In 
an  action  against  joint  debtors  service  of  summons  on  one  authorizes 
judgment  against  all,  which  may  be  enforced  by  execution  against 
the  joint  property,  although  the  other  defendants  are  not  served. 
Code,  §§  1932-1935;  Sternberger  v.  Bernheimer,  121  X.  Y.  191.  The 
same  rule  applies  in  case  of  attachment.  Where  an  attachment  issues 
against  the  property  of  several  defendants  in  an  action  on  a  joint 
liability,  it  may  be  executed  by  a  seizure  of  the  joint  property,  and 
although  the  summons  is  served  on  but  one  of  the  defendants  within 
the  time  prescribed,  and  no  service  is  made  or  publication  commenced 
against  the  other  defendants,  the  attachment  cannot  be  vacated  as  to 
them  for  that  reason.  The  attachment  and  the  lien  continues,  and 
if  the  plaintiff  obtains  judgment  on  the  joint  liability,  the  joint  prop- 
erty seized  on  the  attachment  may  be  sold  on  execution.  The  right 
to  seize  the  joint  property  on  an  attachment  in  an  action  against  joint 
debtors,  although  the  summons  is  served  on  one  only,  is  the  same  as 
in  the  case  of  an  execution  on  a  joint  judgment  under  similar  cir- 
cumstances.    Smith  v.  Orser,  42  N.  Y.  132. 

The  case  of  Staats  v.  Bristow,  73  N.  Y.  2G4,  has  no  bearing  upon 
this  question.  There,  in  an  action  brought  for  a  co-partnership  debt, 
an  attachment  was  issued  against  the  property  of  one  of  the  co-part- 
ners only,  on  the  ground  that  he  was  a  non-resident,  on  which  his 
interest  in  the  co-partnership  was  levied  upon.  The  co-partnership 
was  at  the  time  insolvent.  After  the  seizure  on  the  attachment,  the 
firm  made  a  general  assignment  for  the  benefit  of  creditors,  and 
subsequently,  on  obtaining  judgment  in  the  attachment  action,  the 
interest  of  the  attachment  debtor  in  the  firm  property  was  sold  on 
execution.  An  action  was  brought  to  determine  the  respective  rights 
of  the  purchaser  on  the  execution  sale,  and  of  the  assignee  for  cred- 
itors in  the  property;  and  it  was  held  that  the  plaintiff  acquired  noth- 
ing by  his  levy  and  sale,  because  the  interest  of  the  attachment 
debtor  in  the  property  was  nothing,  as  the  firm  was  insolvent,  and 
that  the  assignee  acquired  title  to  the  coitus  of  the  property  under 
the  assignment. 

In  this  case  the  attachment  was  against  the  joint  property,  and  if 
good  as  against  one  of  the  defendants,  was  good  against  all.  The 
lien  was  not  lost,  nor  could  the  attachment  be  vacated  as  against  any 
of  the  defendants,  there  having  been  a  valid  service  of  the  summons, 
within  the  time  prescribed  by  §  638  of  the  Code,  upon  one  of  the 
defendants. 

The  order  of  the  General  Term  should  be  reversed,  and  the  order  of 
the  Special  Term  affirmed,  with  costs. 


384  EIGHTS   AND    REMEDIES    OF   CREDITORS.  j_CHAP.  V- 


§  1.     Effect  of  Novation. 

KIRWAN   v.    KIRWAN  et  al. 

2  C.  &  M.  617 :  4  Tyrwh.  491.     1834. 

The  defendants,  C.  Kirwan,  M.  Kirwan,  &  N.  Kirwan,  as  partners 
under  the  name  of  J.  Kirwan  &  Sons,  became  indebted  to  plaintiff's 
intestate.  C.  Kirwan  retired  from  the  firm,  and  M.  and  N.  Kirwan 
agreed  to  liquidate  the  firm  affairs.  Later,  M.  Kirwan  retired,  and 
the  dissolutions  of  both  partnerships  were  published  at  the  same  time 
in  the  "  Gazette."  Then,  N.  Kirwan  took  into  partnership,  in  the 
old  firm  name,  one  Kelly.  The  intestate's  account  was  transferred  to 
the  new  firm,  and  he  received  accounts  and  payments  from  them. 
Other  important  facts  appear  in  tbe  opinion.  It  was  agreed  that  the 
court  should  decide  upon  the  matters  of  fact  set  out  in  the  special 
case,  as  well  as  upon  the  matters  of  law. 

Follett,  for  the  plaintiff. 

Coleridge,  Serjt.,  contra. 

Lord  Lyndhurst,  C.  B.     In  this   case  money  was  originally  ad- 
vanced to  the  three  defendants,  and  therefore  they  are  jointly  liable, 
unless  they  can  show  affirmatively  on  their  side,  to  the  satisfaction 
of  the  court,  something  in  point  of  law  to  discharge  them.     We  can- 
not go  out  of  the  special  case.     Upon  that  it  is  contended  that  we 
may  come  to  the  conclusion  that  the  intestate,  and  subsequently  the 
plaintiff,  agreed  to  take  two  of  the  partners,  Matthew  &  Nicholas,  as 
debtors,  and  to  discharge  the  third,  Clement.    For  the  purpose  of  mak- 
ing out  that  proposition,  two  circumstances  are  relied  upon.     In  the 
first  place,  that  notice  of  dissolution  had  been  given,  in  which  it  was 
stated    that   Matthew   &   Nicholas  would    liquidate  the  partnership 
debts.     But  it  is  not  stated  that  any  notice  was  given  to  Anthony 
(plaintiff's  intestate),  nor  is  notice  brought  home  to  him.     Reliance 
is  then  placed  upon  the  letter  of  Nov.  25,  1825,  to  Clement,  which  is 
in  these  terms:  "Dear  Brother,  I  received  your  letter  yesterday:  I 
was  very  well  aware  that,  on  your  dissolving  partnership  with  Mr. 
Nicholas,  I  had  no  further  claim  on  you."     Now,  if  I  am  to  act  the 
part  of  a  juryman,  I  cannot  say  that  the  expressions  in  that  letter 
lead   me   to  the  conclusion  that  there  was  any  agreement  to  accept 
Matthew  &  Nicholas  as  debtors.    The  next  question  is,  Did  Anthony 
engage  to  take  Nicholas  &  Kelly  as  his  debtors?     As  far  as  the  facts 
go,  there  was  a  transfer  of  the  balance,  accounts  were  rendered,  and 
payments  made  on  the  part  of  the  new  firm,  which  it  is  argued  were 
sufficient  to  render  Kelly  liable,  if  Anthony  assented  to  take  him  and 
N.  Kirwan  as  his  debtors.     But  there  is  nothing  to  satisfy  my  mind 
that  he  did  so  consent.     Then,  as  there  is  nothing  that  satisfactorily 
proves  a  transfer  of  Anthony's  debt  to  the  two  brothers,  Matthew 


§  1.]  EFFECT   OF   NOVATION.  385 

and  Nicholas,  or  to  Nicholas  &  Kelly,  the  consequence  is,  that  the 
original  debtors  remain  liable,  and  that  this  action  is  properly  brought 
against  them. 

Judgment  for  jrfaintiffs.1 


LYTH    r.   AULT  et  al. 
7  Exch.  669.     1852. 

Plaintiff  sued  for  goods  sold  and  delivered.  Defendant  Ault,  in 
his  second  plea,  stated  that  the  goods  were  purchased  by  the  defend- 
ants Ault  and  Wood,  as  partners ;  that,  later,  defendants  dissolved  part- 
nership, and  plaintiff,  in  consideration  of  £12  part  payment,  and  of 
defendant  "Wood's  becoming  solel}T  and  separately  liable  for  the  resi- 
due of  the  debt,  agreed  to  accept,  and  did  accept,  the  defendant  Wood 
alone  as  her  debtor  for  the  residue,  and  relinquished  her  claim  against 
defendant  Ault.     Verdict  for  the  defendant  upon  this  plea. 

Cowling  moved  for  a  rule  calling  on  the  defendant  to  show  cause 
why  judgment  should  not  be  entered  for  the  plaintiff  on  the  second 
issue,  non  obstante  veredicto. 

Parke,  B.  The  principle  which  governs  this  case  is  to  be  found 
expounded  in  Thompson  v.  Percival,  5  B.  &  Ad.  925.  It  is  clear 
that  where  there  is  an  accord  and  satisfaction  by  the  debtor  agreeing 
to  give  something  totally  different  in  its  nature  from  the  debt,  and 
which  the  creditor  agrees  to  accept  in  satisfaction  of  the  debt,  the 
court  cannot  inquire  into  the  value  of  that  which  is  the  subject 
matter  of  the  new  agreement;  and  therefore  there  is  nothing  to  pre- 
vent the  parties  from  agreeing  that  a  horse,  or  a  bill  of  exchange, 
or  any  other  commodity,  shall  be  given  in  satisfaction  of  a  larger 
demand.  There  is  a  very  strong  case  to  be  found  in  Dyer,  of  Andrew 
v.  Boughey,  p.  75  a,  where,  to  a  declaration  for  delivering  373  lb.  of 
bad  wax,  upon  an  assumpsit  for  400  lb.  of  good  wax,  stating  half  the 
price  to  have  been  paid  in  hand,  the  rest  to  be  paid  upon  a  day 
agreed,  a  plea  of  20  lb.  of  wax  given  and  accepted  in  satisfaction 
was  held  good.  The  court  proceeded  upon  the  ground  that  they  were 
not  at  liberty  to  go  into  the  value  of  the  consideration  of  the  new 
agreement,  provided  the  thing  differed  in  itself.  The  law  leaves  the 
parties  to  their  bargain. 

Now  it  cannot  be  doubted  that  the  sole  security  of  one  of  two  joint 
debtors  may  be  more  beneficial  than  the  joint  responsibility  of  both. 
In  the  latter  case,  you  are  not  entitled  to  sue  one  with  safety,  for  the 
defendant  may  plead  in  abatement  the  non-joinder  of  his  co-contractor. 
In  the  case  of  the  bankruptcy  of  one  of  the  partners,  there  would  also 

1  The  statement  has  been  shorteued,  and  the  concurring  opinions  of  Paeke  and 
Bollard,  BB.,  have  been  omitted. 

86 


386  EIGHTS   AND   EEMEDIES    OF   CEEDITOES.  [CHAP.  V. 

be  a  difference.  In  the  case  put  by  my  Lord  Chief  Baron,  of  two 
debtors,  where  one  is  a  rich  old  man  and  the  other  is  young  and  with- 
out property,  it  might  be  much  more  advantageous  to  the  creditor  to 
have  his  sole  remedy  against  the  former,  for  he  would  have  the  security 
of  the  personal  and  real  estate  of  the  rich  debtor,  which  he  would 
not  have  at  law  in  case  the  old  man  were  to  die  first.  Where  there 
is  more  than  one  debtor,  the  creditor's  right  is  different.  There  is, 
therefore,  no  doubt  that  the  thing  substituted  is  altogether  different 
from  the  original  debt. 

In  Thompson  v.  Percival,  it  is  said  by  the  Court  of  King's  Bench, 
that,  in  the  case  of  Lodge  v.  Dicas,  3  B.  &  C.  611,  the  difference 
between  the  joint  liability  of  two  and  the  separate  liability  of  one 
does  not  appear  to  have  been  brought  under  the  consideration  of  the 
court.  The  case  of  Lodge  v.  Dicas  rested  upon  a  totally  different 
ground  from  the  present,  for  there  the  consideration  for  the  discharge 
of  the  one  defendant  (Dicas)  was  the  allowing  the  other  partner  to 
collect  the  partnership  debts ;  and  the  court  held  that  as  there  was  no 
evidence  that  that  fact  was  known  to  the  plaintiffs,  there  was  no  con- 
sideration whatever  for  the  plaintiffs'  promise;  but  the  point  which 
now  arises  was  not  taken  by  the  counsel  or  acted  upon  by  the  court. 
This  point,  however,  was  much  considered  in  Thompson  v.  Percival, 
and  the  decision  there  was  wholly  irrespective  of  the  fact  that  a  bill 
had  been  given.  As  I  am,  therefore,  clearly  of  the  opinion  that  the 
sole  responsibility  of  one  of  several  joint  debtors  is  different  from 
their  joint  responsibility,  the  plea  discloses  a  sufficient  consideration 
for  the  plaintiff's  promise  to  exonerate  this  defendant  from  the  resi- 
due of  the  debt,  and  affords  a  good  answer  to  the  action. 

Rule  refused.*- 


In  re  HEAD.     HEAD  v.    HEAD.     No.  2. 

[1894]     2  Ch.  236. 

G.  Head,  whose  estate  was  being  administered  in  this  action,  died 
Dec.  10,  1890,  a  partner  in  a  banking  firm  consisting  of  himself  and 
of  his  son  G.  S.  Head.  The  son  continued  to  carry  on  business  after 
the  father's  death  under  the  old  firm  name. 

The  claimant,  A.  Tester,  at  the  time  of  G.  Head's  death,  had  a 
balance  to  his  credit  in  the  bank  of  £501  lis.  <6d.  Between  that  date 
and  Dec.  24,  1890,  he  drew  out  £22  8s.,  and  paid  in  £122  10s.  On 
Dec.  24,  knowing  of  G.  Head's  death,  claimant  went  to  the  bank  and 
told  G.  S.  Head  that  he  wished  to  draw  out  £500   for  investment. 

1  The  statement  of  facts  is  abridged,  and  the  concurring  opinions  of  Pollock,  C. 
B.,  and  Alderson,  B.,  are  omitted.  Luddington,  v.  Bell,  77  N.  Y.  138  (1879),  accord. 
Motley  v.  Wickoff,  71  N.  W.  520,  ante,  p.  293,  contra. 


^  1.]  EFFECT    OF    NOVATION.  3S7 


s 


Head  advised  him  not  to  do  so,  and  told  him  that  if  he  would  place 
it  on  a  deposit  account  he  would  pay  him  interest  at  3£  per  cent.  To 
this  the  claimant  consented.  G.  S.  Head  then  gave  him  the  follow- 
ing deposit  receipt  for  £500 : 

East  Grinstead  Bank.  Deposit  receipt,  Dec.  24,  1890.  Rec'd  of  Mr.  A. 
Tester,  the  sum  of  £500. 

For  G.  &  G.  S.  Head.  G.  S.  Head. 

This  deposit  receipt  bears  interest  at  3$  per  cent  per  annum,  if  left  un- 
disturbed for  six  months.     It  is  repayable  only  alter  21  days'  notice. 

On  the  same  clay  the  £500  was  transferred  from  the  claimant's 
account  to  a  deposit  account.  The  bank  stopped  payment  on  Feb. 
24,  1892,  and  G.  S.  Head  was  subsequently  adjudicated  a  bankrupt. 
Between  the  date  of  G.  Head's  death  ami  the  stoppage  of  the  bank, 
claimant  drew  out  of  his  current  account  more  than  £501  lis.  G</.,  and 
also  paid  in  various  sums,  having  at  the  date  of  the  stoppage  of  the 
bank  overdrawn  his  current  account  to  the  extent  of  £31  0s.  lOd. 
The  claimant  sought  to  prove  against  G.  Head's  estate  for  £479  3s. 
6c?.,  the  balance  on  the  current  account  at  the  time  of  the  death,  less 
£22  8s.  drawn  out  between  that  date  and  Dec.  24,  1890. 

Mr.  Justice  Chitty  held  that  the  placing  of  £500  at  the  surviving 
partner's  request  on  deposit  at  interest  constituted  a  novation,  and 
that  the  case  was  distinguishable  from  the  claim  of  Mrs.  Reynolds  in 
the  same  action.1     The  claimant  appealed. 

Swinfen  Eady,  Q.  C,  and  Eve,  for  the  appellant. 

R.  F.  Norton  and  Ernest  Hutton,  for  respondent,  were  not  called  on. 

Lindlet,  L.  J.  I  do  not  think  there  is  any  doubt  in  this  case. 
The  customer  went  to  the  surviving  partner  in  the  bank,  and  said 
he  should  draw  out  the  principal  part  of  the  balance  on  his  current 
account.  The  banker  asked  him  not  to  do  this,  but  to  place  it  on 
deposit;  and  the  customer  consented.  It  seems  to  me  that  the  case  is 
the  same  as  if  the  customer  had  drawn  a  cheque  for  the  amount,  and 
put  the  money  in  afresh  on  a  deposit  account,  the  money  being  paid 
out  and  re-lent  on  a  totally  different  contract  from  that  which  existed 

i  In  re  Head  [1893],  3  Ch.  426.  "Chitty,  J.  The  question  I  have  to  decide  is  one 
of  novation.  It  appears  that  Mrs.  Reynolds,  one  of  the  customers  of  the  bank,  left 
£1,400  on  deposit  with  the  original  firm  of  G.  &  G.  S.  Head,  for  which  she  received  a 
deposit  receipt  in  the  usual  form.  After  the  death  of  G.  Head,  the  business  was 
carried  on  by  G.  S.  Head  alone.  Mrs.  Reynolds  was  aware  of  this  fact,  and  on  several 
occasions  she  withdrew  some  of  her  money,  on  one  of  them,  viz.  Dec.  14,  1891,  receiv- 
ing a  fresli  deposit  note  for  the  balance  of  £850  in  precisely  the  same  terms  with  her 
old  deposit  note,  except  that  the  amount  due  was  £850  instead  of  £1,400.  On  this  it 
has  lieeu  argued  that  there  has  been  a  novation,  or,  in  other  words,  that  there  has  bi  en 
an  agreement  on  the  part  of  Mrs.  Reynolds  to  discharge  her  orignal  debtor,  ('•.  Head, 
and  accept  the  liability  of  (•.  S.  Head  alone  in  substitution  for  the  joint  liability  of 
(I.  &  (i.  S.  Head.  The  giving  id  a  fresli  deposit  note  to  a  customer  who  withdraws 
any  part  of  his  deposit  seems  to  have  been  only  a  convenient,  and  very  usual  way,  <>f 
writing  off  a  part  of  the  debt  due  from  the  bank;  l.ut  it  is  not  snfficient  evidence 
of  novation  to  discharge  the  original  debtor  from  liability."     The  claim  was  allowed. 


o 


88  EIGHTS   AND   REMEDIES    OF   CKEDITOKS.  [CHAP.  V. 


in  regard  to  the  current  account.  It  is  not  like  the  cases  which  have 
been  cited.  Harris  v.  Far  well,  15  Beav.  31;  Heath  v.  Percival,  1  P. 
Wms.  682.  When  the  money  was  placed  on  deposit,  the  course  of 
dealing  with  it  was  changed.  I  think  it  would  be  unfair  to  charge 
the  estate  of  the  deceased  partner.  In  niy  opinion,  Mr.  Justice  Chitty 
was  right,  and  the  appeal  must  be  dismissed. 

Lopes  and  Kay,  L.  JJ.,  delivered  concurring  opinions. 


§  1.    Effect  of  Judgment   against  one  Paetnee. 

MASON   v.    ELDRED   et  al. 

6  Wa&  (U.  S.)  231.     1867. 

On  certificate  of  division  between  the  judges  of  the  Circuit  Court  for 
Wisconsin.  A  statute  of  Michigan,  known  as  "  the  Joint  Debtor  Act," 
Compiled  Laws  of  Michigan  of  1857,  vol.  2,  chap.  133,  page  1219,  thus 
enacts  : 

1.  "In  actions  against  two  or  more  persons  jointly  indebted  upon 
any  joint  obligation,  contract,  or  liability,  if  the  process  issued  against 
all  of  the  defendants  shall  have  been  duly  served  upon  either  of  them, 
the  defendant  so  served  shall  answer  to  the  plaintiff,  and  in  such  a  case 
the  judgment,  if  rendered  in  favor  of  the  plaintiff,  shall  be  against  all 
the  defendants,  in  the  same  manner  as  if  all  had  been  served  with 
process. 

2.  "  Such  judgment  shall  be  conclusive  evidence  of  the  liabilities  of 
the  defendants  who  were  served  with  process  in  the  suit,  or  who  appeared 
therein  ;  but  against  every  other  defendant,  it  shall  be  evidence  only  of 
the  extent  of  the  plaintiff's  demand,  after  the  liability  of  such  defendant 
shall  have  been  established  by  other  evidence." 

Other  sections  provide  that  execution  shall  be  issued  inform  against 
all  of  the  defendants  ;  that  the  execution  shall  be  levied  on  the  sole 
property  of  the  defendant  served,  or  on  the  joint  property  of  all  the 
defendants,  and  that  the  plaintiff  may  sue  out  a  scire  facias  against  the 
defendants  not  served  to  show  why  the  plaintiffs  ought  not  to  have 
execution  against  them,  the  same  as  if  they  had  been  served  with  the 
process  by  which  the  suit  was  commenced. 

With  this  statute  in  force  in  Michigan,  Mason  sued,  in  the  Circuit 
Court  for  Wisconsin,  Anson  Eldred,  Elisha  Eldred,  and  one  Balcom, 
trading  as  partners,  upon  a  partnership  note  of  theirs.  Process  was 
served  on  Anson  Eldred  alone,  who  alone  appeared,  and  pleaded  non 
assumpsit.  On  the  trial,  the  note  being  put  in  evidence  by  the  plain- 
tiff, Eldred  offered  the  record  of  a  judgment  in  one  of  the  State  courts 
of  Michigan,  showing  that  Mason  had  already  brought  suit  in  that  court 
on  the  same  note  against  the  partnership  ;  where,  though  Elisha  Eldred 


*  1.1  EFFECT   OF   JUDGMENT    AGAINST   ONE   PARTNER.  3S9 

was  alone  served  and  alone  appeared,  judgment  in  form  bad  passed 
against  all  the  defendants  for  the  full  amount  due  upon  the  note. 
°The  evidence  being  objected  to  by  the  plaintiff,  because  not  admis- 
sible under  the  pleadings,  and  because  it  appeared  on  the  face  of  the 
record  that  there  was  no  judgment   against  either  of  the  defendants 
named  except  Elisha  Eldred,  who  alone,  as  appeared  also,  was  served 
or  appeared,  and  because  it  was  insufficient  to  bar  the  plaintiff's  action, 
the  question  whether  it  was  evidence  under  the  issue  in  bar  of,  and  to 
defeat  a  recovery  against  Anson  Eldred,  was  certified  to  this  court  for 
decision  as  one  on  which  the  judges  of  the  Circuit  Court  were  opposed. 
G.   W.  Lakin,  for  the  plaintiff. 
J.  W.  Cory,  contra. 

Field,  J.  The  counsel  of  the  plaintiff  suggests  that  the  question 
presented  by  the  certificate  of  the  judges  of  the  Circuit  Court  is  divis- 
ible into  two  parts  :  1st.  Whether  the  record  of  the  judgment  recovered 
in  Michigan  was  admissible  under  the  pleadings  ;  and,  2d.  Whether,  if 
admissible,  the  judgment  constituted  a  bar  to  the  present  action.  We 
think,  however,  that  the  admissibility  of  the  record  depends  upon  the 
operation  of  the  judgment. 

If  the  note  in  suit  was  merged  in  the  judgment,  then  the  judgment  is 
a  bar  to  the  action,  and  an  exemplification  of  its  record  is  admissible, 
for  it  has  long  been  settled  that  under  the  plea  of  the  general  issue  in 
assumpsit  evidence  may  be  received  to  show,  not  merely  that  the  alleged 
cause  of  action  never  existed,  but  also  to  show  that  it  did  not  subsist 
at  the  commencement  of  the  suit.  Young  v.  Black,  7  Cranch,  565  ; 
Young  v.  Rummell,  2  Hill,  480.  On  the  other  hand,  if  the  note  is  not 
thus  merged,  it  still  forms  a  subsisting  cause  of  action,  and  the  judg- 
ment is  immaterial  and  irrelevant. 

The  question  then  for  determination  relates  to  the  operation  of  the 
judgment  upon  the  note  in  suit. 

The  plaintiff  contends  that  a  co-partnership  note  is  the  several  obli- 
gation of  each  co-partner,  as  well  as  the  joint  obligation  of  all,  and  that 
a  judgment  recovered  upon  the  note  against  one  co-partner  is  not  a  bar 
to  a  suit  upon  the  same  note  against  another  co-partner ;  and  the  latter 
position  is  insisted  upon  as  the  rule  of  the  common  law,  independent  oi 
the  Joint  Debtor  Act  of  Michigan. 

It  is  true  that  each  co-partner  is  bound  for  the  entire  amount  due  on 
co-partnership  contracts  ;  and  that  this  obligation  is  so  far  several  that 
if  he  is  sued  alone,  and  does  not  plead  the  non-joinder  of  his  co-partners, 
a  recovery  may  be  had  against  him  for  the  whole  amount  due  upon  the 
contract,  and  a  joint  judgment  against  the  co-partners  may  be  enforced 
against  the  property  of  each.  But  this  is  a  different  thing  from  the 
liability  which  arises  from  a  joint  and  several  contract.  There  the  con- 
tract contains  distinct  engagements,  that  of  each  contractor  individually, 
and  that  of  all  jointly,  and  different  remedies  may  be  pursued  upon 
each.  The  contractors  may  be  sued  separately  on  their  several  engage- 
ments or  together  on  their  joint  undertaking.     But  in  co-partnerships 


390 


EIGHTS   AND    REMEDIES   OF   CREDITORS.  [CHAP.  V. 


there  is  no  such  several  liability  of  the  co-partners.  The  co-partner- 
ships are  formed  for  joint  purposes.  The  members  undertake  joint 
enterprises,  they  assume  joint  risks,  and  they  incur  in  all  cases  joint 
liabilities.  In  all  co-partnership  transactions  this  common  risk  and 
liability  exists.  Therefore  it  is  that  in  suits  upon  these  transactions  all 
the  co-partners  must  be  brought  in,  except  when  there  is  some  ground 
of  personal  release  from  liability,  as  infancy  or  a  discharge  in  bank- 
ruptcy ;  and  if  not  brought  in,  the  omission  may  be  pleaded  in  abate- 
ment. The  plea  in  abatement  avers  that  the  alleged  promises,  upon 
which  the  action  is  brought,  were  made  jointly  with  another  and  not 
with  the  defendant  alone,  a  plea  which  would  be  without  meaning,  if  the 
co-partnership  contract  was  the  several  contract  of  each  co-partner. 

The  language  of  Lord  Mansfield  in  giving  the  judgment  of  the 
King's  Bench  in  Rice  v.  Shute,  Burrow,  2511,  "  that  all  contracts  with 
partners  are  joint  and  several,  and  every  partner  is  liable  to  pay  the 
whole,"  must  be  read  in  connection  with  the  facts  of  the  case,  and  when 
thus  read  does  not  warrant  the  conclusion  that  the  court  intended  to 
hold  a  co-partnership  contract  the  several  contract  of  each  co-partner, 
as  well  as  the  joint  contract  of  all  the  co-partners,  in  the  sense  in  which 
these  terms  are  understood  by  the  plaintiff's  counsel,  but  only  that  the 
obligation  of  each  co-partner  was  so  far  several  that  in  a  suit  against 
him  judgment  would  pass  for  the  whole  demand,  if  the  non-joinder  of 
his  co-partners  was  not  pleaded  in  abatement. 

The  plea  itself,  which,  as  the  court  decided,  must  be  interposed  in 
such  cases,  is  inconsistent  with  the  tn'pothesis  of  a  several  liability. 

For  the  support  of  the  second  position,  that  a  judgment  against  one 
co-partner  on  a  co-partnership  note  does  not  constitute  a  bar  to  a  suit 
upon  the  same  note  against  another  co-partner,  the  plaintiff  relies  upon 
the  case  of  Sheehy  v.  Mandeville  &  Jamesson,  decided  bj'  this  court, 
and  reported  in  6  Cranch,  254.  In  that  case  the  plaintiff  brought  a 
suit  upon  a  promissory  note  given  by  Jamesson  for  a  co-partnership 
debt  of  himself  and  Mandeville.  A  previous  suit  had  been  brought 
upon  the  same  note  against  Jamesson  alone,  and  judgment  recovered. 
To  the  second  suit  against  the  two  co-partners  the  judgment  in  the  first 
action  was  pleaded  by  the  defendant,  Mandeville,  and  the  court  held 
that  it  constituted  no  bar  to  the  second  action,  and  sustained  a  demurrer 
to  the  plea. 

The  decision  in  this  case  has  never  received  the  entire  approbation  of 
the  profession,  and  its  correctness  has  been  doubted  and  its  authority 
disregarded  in  numerous  instances  b}T  the  highest  tribunals  of  different 
States.  It  was  elaborately  reviewed  by  the  Supreme  Court  of  New  York 
in  the  case  of  Robertson  v.  Smith,  18  Johnson,  459,  where  its  reason- 
ing was  declared  unsatisfactory,  and  a  judgment  rendered  in  direct  con- 
flict with  its  adjudication. 

In  the  Supreme  Court  of  Massachusetts  a  ruling  similar  to  that  of 
Robertson  v.  Smith  was  made.  "Ward  v.  Johnson,  13  Massachusetts.  148. 
Jn  Wann  v.  McNulty,  2  Gilman,  359,  the  Supreme  Court  of  Illinois 


§  1.]  EFFECT   OF   JUDGMENT   AGAINST    ONE    PARTNER.  391 

commented  upon  the  case  of  Sheehy  v.  Mandeville,  and  declined  to  fol- 
low it  as  authority.  The  court  observed  that  notwithstanding  the 
respect  which  it  felt  for  the  opinions  of  the  Supreme  Court  of  the  United 
States,  it  was  well  satisfied  that  the  rule  adopted  by  the  several  State 
courts  —  referring  to  those  of  New  York,  Massachusetts,  Maryland, 
and  Indiana  —  was  more  consistent  with  the  principles  of  law,  and  was 
supported  by  better  reasons. 

In  Smith  v.  Black,  9  Sergeant  &  Rawle,  142,  the  Supreme  Court  of 
Pennsylvania  held  that  a  judgment  recovered  against  one  of  two  part- 
ners was  a  bar  to  a  subsequent  suit  against  both,  though  the  new 
defendant  was  a  dormant  partner  at  the  time  of  the  contract,  and  was 
not  discovered  until  after  the  judgment.  "  No  principle,"  said  the 
court,  "  is  better  settled  than  that  a  judgment  once  rendered  absorbs 
and  merges  the  whole  cause  of  action,  and  that  neither  the  matter  nor 
the  parties  can  be  severed,  unless  indeed  where  the  cause  of  action  is 
joint  and  several,  which,  certainly,  actions  against  partners  are  not." 

In  its  opinion  the  court  referred  to  Sheehy  v.  Mandeville,  and 
remarked  that  the  decision  in  that  case,  however  much  entitled  to 
respect  from  the  character  of  the  judges  who  composed  the  Supreme 
Court  of  the  United  States,  was  not  of  binding  authority,  and  it  was 
disregarded. 

In  King  v.  Hoar,  13  Meeson  &  Welsby,  495,  the  question  whether  a 
judgment  recovered  against  one  of  two  joint  contractors  was  a  bar  to 
an  action  against  the  other,  was  presented  to  the  Court  of  Exchequer 
and  was  elaborately  considered.  The  principal  authorities  were  reviewed, 
and  the  conclusion  reached  that  by  the  judgment  recovered  the  original 
demand  had  passed  in  rem  judicatam,  and  could  not  be  made  the 
subject  of  another  action.  In  the  course  of  the  argument  the  case  of 
Sheehy  v.  Mandeville  was  referred  to  as  opposed  to  the  conclusion 
reached,  and  the  court  observed  that  it  had  the  greatest  respect  for  any 
decision  of  Chief  Justice  Marshall,  but  that  the  reasoning  attributed  to 
him  in  the  report  of  that  case  was  not  satisfactory.  Mr.  Justice  Story, 
in  Trafton  v.  The  United  States,  3  Story,  651,  refers  to  this  case  in  the 
Exchequer,  and  to  that  of  Sheehy  v.  Mandeville,  and  observes  that  in 
the  first  case  the  Court  of  Exchequer  pronounced  what  seemed  to  him 
a  very  sound  and  satisfactory  judgment,  and  as  to  the  decision  in  the 
latter  case,  that  he  had  for  years  entertained  great  doubts  of  its 
propriety. 

The  general  doctrine  maintained  in  England  and  the  United  States 
may  be  briefly  stated.  A  judgment  against  one  upon  a  joint  contract 
of  several  persons,  bars  an  action  against  the  others,  though  the  latter 
were  dormant  partners  of  the  defendant  in  the  original  action,  and  this 
fact  was  unknown  to  the  plaintiff  when  that  action  was  commenced. 
Winn  the  contract  is  joint,  and  not  joint  and  several,  the  entire  cause 
of  action  is  merged  in  the  judgment.  The  joint  liabilit\*  of  the  parties 
not  sued  with  those  against  whom  the  judgment  is  recovered,  being 
extinguished,   their   entire    liability   is   gone.     They    cannot   be   sued 


392  EIGHTS   AND   EEMEDIES    OF   CEEDITOES.  [CHAP.  V. 

separately,  for  they  have  incurred  no  several  obligation ;  they  cannot 
be  sued  jointly  with  the  others,  because  judgment  has  been  already 
recovered  against  the  latter,  who  would  otherwise  be  subjected  to  two 
suits  for  the  same  cause. 

If,  therefore,  the  common  law  rule  were  to  govern  the  decision  of  this 
case,  we  should  feel  obliged,  notwithstanding  Sheehy  v.  Mandeville,  to 
hold  that  the  promissory  note  was  merged  in  the  judgment  of  the  Court 
of  Michigan,  and  that  the  judgment  would  be  a  bar  to  the  present 
action.  But,  by  a  statute  of  that  State,  Compiled  Laws  of  Michigan  of 
1857,  vol.  2,  chap.  133,  page  1219,  the  rule  of  the  common  law  is 
changed  with  respect  to  judgments  upon  demands  of  joint  debtors, 
when  some  only  of  the  parties  are  served  with  process.  The  statute 
enacts  that  "  in  actions  against  two  or  more  persons  jointly  in- 
debted upon  any  joint  obligation,  contract,  or  liability,  if  the  process 
against  all  of  the  defendants  shall  have  been  duly  served  upon  either  of 
them,  the  defendant  so  served  shall  answer  to  the  plaintiff,  and  in  such 
case  the  judgment,  if  rendered  in  favor  of  the  plaintiff,  shall  be  against 
all  the  defendants  in  the  same  manner  as  if  all  had  been  served  with 
process,"  and  that,  "  such  judgment  shall  be  conclusive  evidence  of  the 
liabilities  of  the  defendant  who  was  served  with  process  in  the  suit,  or 
who  appeared  therein  ;  but  against  every  other  defendant  it  shall  be 
evidence  only  of  the  extent  of  the  plaintiff's  demand,  after  the  liability 
of  such  defendant  shall  have  been  established  by  other  evidence." 

Judgments  in  cases  of  this  kind  against  the  parties  not  served  with 
process,  or  who  do  not  appear  therein,  have  no  binding  force  upon 
them,  personally.  The  principle  is  as  old  as  the  law,  and  is  of  universal 
justice,  that  no  one  shall  be  personally  bound  until  he  has  had  his  day 
in  court,  which  means  until  citation  is  issued  to  him,  and  opportunity  to 
be  heard  is  afforded.  D'Arcj'  v.  Ketchum,  1  Howard,  165.  Nor  is  the 
demand  against  the  parties  not  sued  merged  in  the  judgment  against 
the  party  brought  into  court.  The  statute  declares  what  the  effect  of 
the  judgment  against  him  shall  be  with  respect  to  them  ;  it  shall  only 
be  evidence  of  the  extent  of  the  plaintiff's  demand  after  their  liability  is 
by  other  evidence  established.  It  is  entirely  within  the  power  of  the 
State  to  limit  the  operation  of  the  judgment  thus  recovered.  The  State 
can  as  well  modify  the  consequences  of  a  judgment  in  respect  to  its 
effect  as  a  merger  and  extinguishment  of  the  original  demand,  as  it  can 
modify  the  operation  of  the  judgment  in  any  other  particular. 

A  similar  statute  exists  in  the  State  of  New  York,  and  the  highest 
tribunals  of  New  York  and  Michigan,  in  construing  these  statutes,  have 
held,  notwithstanding  the  special  proceedings  which  they  authorize 
against  the  parties  not  served  to  bring  them  afterward  before  the  court, 
if  found  within  the  State,  that  such  parties  ma}'  be  sued  upon  the  orig- 
inal demand. 

In  Bonesteel  v.  Todd,  9  Michigan,  379,  an  action  of  covenant  was 
brought  against  two  parties  to  recover  rent  reserved  upon  a  lease.  One 
of  them  was  alone  served  with  process,  and  he  appeared  and  pleaded 


§  1.]  EFFECT    OF    JUDGMENT   AGAINST    ONE    PARTNER.  393 

the  general  issue,  and  on  the  trial,  as  in  the  case  at  bar,  produced  the 
record  of  a  judgment  recovered  against  himself  and  his  co-defendant 
under  the  Joint  Debtor  Act  of  New  York,  process  in  that  State  having 
been  served  upon  his  co-defendant  alone.  The  court  below  held  the 
judgment  to  be  a  bar  to  the  action.  On  error  to  the  Supreme  Court  of 
the  State  this  ruling  was  held  to  be  erroneous.  After  referring  to 
decisions  in  Xew  York,  the  court  said  :  "  No  one  has  ever  doubted  the 
continuing  liability  of  all  parties.  We  cannot,  therefore,  regard  the 
liability  as  extinguished.  And,  inasmuch  as  the  new  action  must  be 
based  upon  the  original  claim,  while,  as  in  the  case  of  foreign  judgments 
at  common  law,  it  may  be  of  no  great  importance  whether  the  action 
may  be  brought  in  form  upon  the  judgment,  or  on  the  previous  debt,  it 
is  certainly  more  in  harmony  with  our  practice  to  resort  to  the  form  of 
action  appropriate  to  the  real  demand  in  controversy.  While  we  do  not 
decide  an  action  in  form  on  the  judgment  to  be  inadmissible,  we  think 
the  action  on  the  contract  the  better  remedy  to  be  pursued." 

In  Oakley  y.  Aspinwall,  4  Comstock,  513,  the  Court  of  Appeals  of 
New  York  had  occasion  to  consider  the  effect  of  a  judgment  recovered 
under  the  Joint  Debtor  Act  of  that  State  upon  the  original  demand.  Mr. 
Justice  Bronson,  speaking  for  the  court,  says:  "It  is  said  that  the 
original  demand  was  merged  in,  and  extinguished  by  the  judgment,  and 
consequently,  that  the  plaintiff  must  sue  upon  the  judgment,  if  he  sues 
at  all.  That  would  undoubtedly  be  so  if  both  the  defendants  had  been 
before  the  court  in  the  original  action.  But  the  Joint  Debtor  Act  creates 
an  anomaly  in  the  law.  And  for  the  purpose  of  giving  effect  to  the 
statute,  and  at  the  same  time  preserving  the  rights  of  all  parties,  the 
plaintiff  must  be  allowed  to  sue  on  the  original  demand.  There  is  no 
difficulty  in  pursuing  such  a  course  ;  it  can  work  no  injury  to  any  one, 
and  it  will  avoid  the  absurdity  of  allowing  a  party  to  sue  on  a  pretended 
cause  of  action  which  is,  in  truth,  no  cause  of  action  at  all,  and  then  to 
recover  on  proof  of  a  different  demand." 

Following  these  authorities,  and  giving  the  judgment  recovered  in 
Michigan  the  same  effect  and  operation  that  it  would  have  in  that  State, 
we  answer  the  question  presented  in  the  certificate,  that  the  exempli- 
fication of  the  record  of  the  judgment  recovered  against  the  defendant, 
Elisha  Eldred,  offered  by  the  defendant,  Anson  Eldred,  is  not  admis- 
sible in  evidence  in  bar  of,  and  to  defeat,  a  recovery  against  the  latter. 


NATHANSON   v.    SPITZ  et  al. 

31  At.  (R.  I.)  090.     1895. 

Tillingiiast,  J.  At  the  time  of  the  suing  out  of  the  plaintiffs  writ  in 
this  case,  the  defendants,  Samuel  Adams  and  Jacob  Spitz,  were  co- 
partners in  business,  under  the  firm  name  of  Adams  &  Spitz,  at  Boston, 


394  EIGHTS   AND   REMEDIES   OF   CREDITORS.  [CHAP.  V. 

in  the  State  of  Massachusetts,  where  they  both  resided.  The  writ  was 
served  by  arresting  the  defendant  Spitz  while  temporarily  in  this  State, 
and  by  sending  an  attested  copy  of  said  writ  b}-  mail  to  the  defendant 
Adams,  at  Boston.  The  defendant  Spitz  entered  a  special  appearance 
for  himself,  and  filed  a  plea  in  abatement,  on  the  ground  that  there 
had  been  no  legal  service  upon  the  defendant  Adams,  the  other  joint 
obligor  in  the  contract  sued  on  ;  to  which  plea  the  plaintiff  demurred. 
The  only  question  raised,  therefore,  by  the  pleadings,  is  as  to  the 
sufficiency  of  said  service.  The  substance  of  the  contention  of  counsel 
who  appears  for  said  Spitz  in  support  of  his  plea  in  abatement  is : 
First,  that  the  liability  of  partners  on  a  firm  obligation  is,  during  the 
lives  of  the  partners,  joint,  and  not  joint  and  several,  and  hence  that 
the  partners  must  sue  and  be  sued  jointly  ;  and,  second,  that,  in  regard 
to  service  of  process,  the  common  law  makes  no  distinction  between 
partners  and  other  joint  obligors,  and  hence  that  they  all  must  be 
served  with  process  before  judgment  can  be  obtained  against  any  of 
them,  even  though  some  are  non-residents. 

As  to  the  first  point:  It  is  doubtless  true  that,  independently  of 
any  statute,  the  liability  of  a  partnership  for  the  debts  thereof  is  a 
joint  and  indivisible  liability,  and  hence  that  all  of  the  partners  must 
be  joined  in  a  suit  for  the  recovery  of  such  debts.  Dicey,  Parties 
(Truman's  Notes),  p.  285,  rule  56;  Bates,  Partn.  Lib.  ed.  §  1049; 
Pearce  v.  Cooke,  13  R.  I.  184  ;  Page  v.  Brandt,  18  III.  37;  Kent  v. 
Holliday,  17  Md.  387  ;  Bell  v.  Donohoe,  17  Fed.  710. 

As  to  the  second  point :  At  common  law,  when  one  of  several  joint 
defendants  was  out  of  the  jurisdiction  of  the  court,  so  that  it  was 
impossible  to  obtain  service  upon  him,  the  plaintiff  might  institute 
proceedings  of  outlawry  against  such  non-resident  defendant ;  and,  after 
jud£ment°of  outlawry  had  been  obtained  against  him,  the  plaintiff 
could  proceed  to  recover  a  separate  judgment  against  the  defendants 
served  with  process.  2  Coolev's  Bl.  pk.  3,  pp.  281,  282  ;  Edwards  v. 
Carter,  1  Str.  473  ;  Tidd,  Prac.  *423  ;  1  Chit.  PI.  Lib.  ed.  *49.  The 
proceeding  of  outlawry  in  civil  cases,  however,  is  unknown  in  the 
United  States  ;  and,  if  there  are  any  cases  of  outlawry  in  criminal  cases 
even,  they  are  very  rare.  In  England,  also,  it  has  long  been  obsolete 
in  civil  proceedings,  and  was  formally  abolished  by  the  civil  procedure 
acts.  Repeal  Act?  1879  ;  42  &  43  Vict.  c.  59.  In  criminal  proceedings 
even,  it  is  but  little  used,  but  is  formally  kept  alive  by  33  &  34  Vict. 
c.  23.  In  Hall  v.  Lanning,  91  U.  S.  168,  Mr.  Justice  Bradley,  in 
delivering  the  opinion  of  the  court,  said:  "In  most  of  the  States 
legislative  acts  have  been  passed,  called  '  Joint  Debtor  Acts,'  which, 
as°a  substitute  for  outlawry,  provide  that  if  process  be  issued  against 
several  joint  debtors  or  partners,  and  served  on  one  or  more  of  them, 
and  if  the  others  cannot  be  found,  the  plaintiff  may  proceed  against 
those  served,  and,  if  successful,  have  judgment  against  all.  Various 
effects  and  consequences  are  attributed  to  such  judgments  in  the  States 
in  which  they  are  rendered.     They  are   generally  held   to  bind    the 


§  1.]  EFFECT    OF   JUDGMENT    AGAINST    ONE    PARTNER.  395 

common  property  of  the  joint  debtors,  as  well  as  the  separate  property 
of  those  served  with  process,  when  such  property  is  situated  in  the 
State,  but  not  the  separate  property  of  those  not  served  :  and.  while 
they  are  binding  personally  on  the  former,  they  are  regarded  as  either 
not'  personally   binding  at  all  or  only  prima  facie   binding  on    the 

latter." 

In  this  State,  while  there  is  no  statute  which  in  express  terms  goes  to 
this  extent,  although  by  §  17,  c.  13,  of  the  Judiciary  Act,  partnership 
debts  become  joint  and  several  on  the  decease  of  one  of  the  partners, 
Pearce  v.  Cooke,  13  R.  I.  184,  yet  there  is  a  statute  which  practically 
accomplishes  the  same  result.     We  refer  to  §  18  of  c.  13  of  the  Judi- 
ciary Act,  which  provides  as  follows  :   '-No  judgment,  without-complete 
satisfaction,  rendered  against  a  part  only  of   the  defendants   in    any 
action  upon  a  joint  contract,  shall  be  a  bar  to  any  future  action  on  said 
contract,  for  any  unsatisfied  balance  due,  against  such  of  the  defend- 
ants upon  whom,  or  whose  estate  the  writ  in  the  original  action  shall 
not  have  been  served."     It  is  clearly  to  be  implied  from  this  statute 
that  service  on  a  part  only  of  the  defendants,  in  an  action  upon  a  joint 
contract,  is  sufficient  to  give  the  court  jurisdiction.     And  it  is,  doubt- 
less, by  reason  of  the  existence  of  said  statute,  which  appears  in  sub- 
stantially the  same  form  as  early  as  the  Revision  of  1844,  that   the 
settled  practice  in  this  State,  in  cases  like  the  one  now  before  us,  has 
been  to  serve  the  writ  upon  such  of  the  defendants  as  are  within  the 
jurisdiction  thereof,  and  to  proceed  only  against  them  for  the  breach  of 
such  contract.     See  Winslow  v.  Brown,  7  R.  I.  95.     Moreover,  we  see 
no  reason  why  the  return  of  non  est  inventus  made  by  the  sheriff  in  this 
case  as  to  the  defendant  Samuel  Adams  may  not  properly  be  treated 
as  equivalent  to  the  common-law  process  of  outlawry.     The  writ  was 
properly  sued  out  against  both  of  the  defendants,  and  the  return  thereon 
shows  that  the  plaintiff  has  done  all  that  he  could  to  bring  them  both 
into  court ;  and,  having  succeeded  as  to  one  of  them,  it  would  seem 
that  he  ought  to  be  allowed  to  proceed  to  obtain  a  judgment  against 
him.     See  Dillman  v.  Schultz,  5  Serg.  &  R.  36  ;  Tappan  v.  Bruen,  5 
Mass.  193.     But,  however  this  may  be,  we  are  clearly  of  the  opinion 
that,  under  the  statute  above  quoted,  and  the  uniform  practice  in  this 
State,   the  case  at  bar  may   properly   proceed  against  the  defendant 
Spitz,  upon  whom  only  the  writ  was  served. 

The   demurrer  is   therefore   sustained,   and  the   plea  in   abatement 
overruled. 


396  EIGHTS    AND   REMEDIES    OF   CREDITORS.  [CHAP.  V. 


§  1.     Eemedies  against  Dormant  Partners. 

ROBINSON   v.   WILKINSON. 
3  Price,  538.     1817. 

Cay  and  Wilkinson  were  part-owners  of  the  ship  Lord  Eldon,  and 
partners  in  its  management.  Robinson  furnished  supplies  and  cash 
for  the  ship,  not  knowing  that  Wilkinson  was  a  partner,  but  suppos- 
ing that  Cay  was  sole  proprietor.  Cay,  becoming  insolvent,  induced 
Robinson  to  take  a  bill  drawn  by  Cay  on  one  Wilson,  and  accepted 
by  the  latter  for  13s.  in  the  pound  of  Robinson's  claim.  The  bill 
was  negotiated  by  Robinson,  was  dishonored, —  both  Cay  and  Wilson 
having  become  bankrupts  before  the  bill  matured,  —  and  Robinson, 
having  discovered  that  Wilkinson  was  a  partner  when  the  debt  was 
contracted,  brought  this  action  against  him  for  its  recovery.  Verdict 
for  the  plaintiff. 

Ganselee,  for  the  plaintiff. 

Lawes,  E.,  contra. 

Richards,  B.  The  question  is,  whether  this  defendant  is  dis- 
charged by  anything  that  has  taken  place.  Whatever  effect  any  or 
all  of  these  transactions  might  have  had  if  Wilkinson  had  been  known 
to  be  a  partner  of  Cay,  is  entirely  put  out  of  this  case,  because  the 
plaintiff  certainly  dealt  entirely  with  Cay,  and  knew  nothing  of 
Wilkinson,  who  was,  nevertheless,  clearly  prima  facie  liable. 

It  is  clear  law  that  a  dormant  partner  cannot  discharge  himself 
from  liability  to  pay  the  debts  of  a  creditor  through  the  medium  of 
his  ostensible  partner  by  any  acts  of  his  during  the  concealment  of 
the  unknown  partner.  If  it  were  otherwise,  and  this  action  be  not 
maintainable,  a  door  is  widely  opened  to  defraud  creditors  by  means 
of  dormant  partnerships.  If  the  plaintiff  had  originally  known  that 
this  defendant  had  been  a  partner,  he  would  not  have  dealt  with  Cay 
alone,  or  if  he  had  discovered  it  earlier,  he  would  probably  not  have 
done  many  of  those  acts  which,  without  such  knowledge,  he  has 
done.  It  is  quite  clear  that  this  verdict  ought  to  stand  for  the  £380 
16s.  Id.  Postea  to  the  plaintiff . 

Concurring  opinions  were  delivered  by  Graham  and  Wood,  BB. 


MOHAWK   NAT.    BANK   v.    VAN  SLYCK  et  al. 

29  Hun  (N.  Y.),  188.     1S83. 

Action  upon  two  promissory  notes  payable  to  the  order  of  defend- 
ant Toll,  indorsed  by  him,  discounted  by  the  plaintiff,  not  paid  at 
maturity,  and  duly  protested.     Plaintiff  claimed  that  all  of  the  defend- 


§  1.]  REMEDIES    AGAINST   DORMANT    PARTNERS.  397 

ants  were  partners,  that  the  notes  belonged  to  the  firm  and  that  Toll's 
indorsement  was  the  firm's  indorsement  The  notes  in  suit  were 
given  by  the  makers  for  the  purchase  price  of  brooms  sold  to  them  by 
Toll  in  his  own  name,  but  which,  the  evidence  showed,  were  owned  by 
the  defendants,  as  partners  under  an  agreement,  which  was  kept  secret 
from  the  plaintiff.  Toll  was  also  engaged  in  selling  brooms  on  his 
own  account.  While  his  individual  business  and  the  business  carried 
on  under  the  agreement  were  kept  separate,  and  separate  books  were 
kept  by  Toll,  the  banking  transactions  of  each  business  were  con- 
ducted by  Toll  with  plaintiff  in  his  own  name,  and  in  one  account. 
When  plaintiff  discounted  the  notes  in  suit,  it  did  not  know  of  the 
partnership,  and  discounted  them  on  the  credit  of  the  makers  and  of 
Toll.  From  a  verdict  for  plaintiff  directed  by  the  court,  the  defend- 
ants other  than  Toll  appealed. 

S.   W.  Jackson,  for  the  appellants. 
Alonzo  P.  Strong,  for  the  respondent. 

Learned,  P.  J.  .  .  .  The  agreement  shows  that  the  business  was 
to  be  done  in  the  name  of  Toll.  He  was  to  purchase  and  to  sell,  —  in 
whose  name  if  not  in  his  own?  He  was  to  insure  expressly  in  his 
own  name.  Therefore  his  name  was  the  partnership  name.  Bank 
of  Rochester  v.  Monteath,  1  Den.  402 ;  Nat.  Bk.  v.  Landon,  45  N.  Y. 
410;  Ontario  Bk.  v.  Hennessy,  48  Id.  545. 

Again,  the  notes  in  question  were  given  by  the  makers  in  payment 
of  brooms  belonging  to  the  defendants,  which  brooms  were  sold  to 
the  makers  by  that  one  of  the  defendants  who  had  charge  of  the  busi- 
ness, and  were  sold  by  their  directions.  The  notes  therefore  were  the 
property  of  the  defendants,  payable  to  them,  under  the  name  by  which 
they  were  conducting  the  business.  Until  the  rights  of  bona  fide 
holders  should  intervene,  the  defendants  might  claim  that  these  notes 
were  their  property,  and  were  not  the  property  of  Toll  individually. 
When,  therefore,  Toll  indorsed  the  notes,  the  indorsement  was  that  of 
the  partnership,  because  the  notes  were  payable  to  the  partnership 
and  belonged  to  the  partnership.  The  liability  then  of  the  defendants 
to  the  plaintiff  does  not  rest  upon  the  plaintiff's  knowledge,  but  upon 
the  fact  that  by  the  indorsement  the  defendants'  property  was  trans- 
ferred to  the  plaintiff.  If  Toll  had  sold  brooms  belonging  to  the 
defendants,  they  would  have  been  bound  by  the  terms  of  the  sale ;  for 
instance,  to  guaranty  the  title  or  the  quality.  He  sold  to  plaintiff 
two  notes  which  belonged  to  the  defendants,  and  they  are  bound  by 
the  terms  of  that  sale,  one  of  which  was  the  guarantee  of  indorsement. 
Winship  v.  Bank  of  U.  S.,  5  Pet.  529.   .  .  . 

Judgment  affirmed.1 

1  The  statement  has  been  abridged,  and  a  part  of  the  opinion  is  omitted. 


P>98  EIGHTS   AND    REMEDIES    OF   CREDITORS.  [CHA.P.  V. 

ELMIRA   IRON    &c.  CO.    v.    HARRIS  et  al. 

124  N.  Y.  280.     1891. 

Toe  action  is  brought  to  recover  upon  liabilities  of  Blood  &  Co., 
originally  composed  of  the  defendants.  Harris  alone  defends,  on 
the  ground  that  several  years  prior  to  the  transactions  in  suit  he  had 
withdrawn  from  the  firm.  Notice  of  his  withdrawal  was  not  given  to 
the  plaintiff,  but  defendant  insists  that  he  was  a  dormant  partner, 
and  therefore  not  bound  to  give  notice  of  his  retirement  from  the  firm 
to  those  with  whom  the  firm  had  dealt  prior  thereto  for  an  indebted- 
ness subsequently  incurred  by  those  who  continued  to  carry  on  the 
business.  The  material  facts  are  stated  in  the  opinion.  From  a 
verdict  for  the  defendant  tbe  plaintiff  appealed. 

Frederick  Collin,  for  appellant. 

J.  A.  Gibson,  for  respondent. 

Parker,  J.  The  question  to  be  determined  is  presented  by  an 
exception  taken  to  the  refusal  of  the  court  to  direct  a  verdict  in  favor 
of  the  plaintiff.  The  plaintiff  insisted  that  it  was  the  duty  of  the 
court  to  determine,  as  a  matter  of  law,  that  the  defendant,  while  a 
member  of  the  firm  of  Blood  &  Co.,  was  an  ostensible  partner.  The 
trial  court  held  otherwise,  and  submitted  to  the  jury  the  question 
whether  Harris  was  an  ostensible  or  dormant  partner,  with  the  further 
instruction  that  if  they  should  find  that  he  was  a  dormant  partner, 
then  the  defendant  was  entitled  to  a  verdict. 

Now  it  is  the  general  rule  that  a  partner  can  only  relieve  himself 
from  a  liability  for  subsequent  transactions  had  with  his  former  part- 
ners, in  the  partnership  name,  by  giving  notice  of  his  withdrawal. 
Austin  v.  Holland,  69  N.  Y.  571;  Howell  v.  Adams,  68  Id.  314; 
Elkinton  v.  Booth,  143  Mass.  479.  The  rule  is  founded  upon  the 
principle  governing  the  liability  of  a  principal  for  the  acts  of  his 
agent,  where  an  agent  has  once  represented  his  principal,  if  the  prin- 
cipal would  avoid  responsibility  for  his  acts  in  the  direction  of  his 
original  authority  after  the  agency  has  ceased,  it  is  incumbent  on 
him  to  notify  those  with  whom  he  has  dealt  that  such  relation  no 
longer  continues.  And  a  partner  in  dealing  with  third  parties  in 
behalf  of  the  partnership  not  only  acts  for  himself  but  as  agent  for 
each  of  the  other  members  of  the  firm.  So  that  when  a  partner  with- 
draws from  a  firm,  it  is  his  duty  to  give  notice  of  that  fact  in  order 
that  it  may  be  understood  that  his  former  partners  have  no  longer 
any  right  to  represent  him.  And  if  he  fail  to  discharge  that  obliga- 
tion he  cannot,  thereafter,  avoid  liability  for  an  indebtedness  incurred 
in  the  partnership  name  to  a  party  unaware  of  the  changed  situation. 

It  appears  that  a  notice  of  dissolution  was,  at  the  time,  published 
in  a  local  paper,  but  that  could  only  affect  those  who  should  deal  with 
the  firm  for  the  first  time,  after  the  withdrawal.  It  did  not  operate 
as  a  notice  to  plaintiff,  with  whom  the  firm  had  had  business  relations 


8  1.]  REMEDIES    AGAINST   DORMANT    PARTNERS.  399 

prior  thereto.  As  to  it,  actual  notice  could  aloue  suffice.  It  was  not 
oiveu,  and  therefore  defendant  is  chargeable  with  the  indebtedness 
sought  to  be  recovered,  unless  he  is  entitled  to  the  protection  of  the 

one  exception  to  the  rule  continuing  the  liability  of  partners  after 
dissolution,  who  fail  to  give  notice.  A  dormant  partner  need  not 
give  notice,  and  the  jury  have  been  permitted  to  find  that  such  was 
Harris'  relation  to  the  firm  of  Blood  &  Co.  Whether  rightly,  we 
must  now  consider.  The  first  step  in  that  direction  is  to  ascertain 
what  is  meant  by  the  term  dormant  partner.  Bouvier  defines  dor- 
mant as  sleeping,  silent,  not  known,  not  acting.  "A  dormant 
partner,"  says  Collyer,  Tartu.  6th  ed.  p.  11,  "is  he  whose  name  and 
transactions  as  a  partner  are  professedly  concealed  from  the  world, 
...  is  one  who  shares  in  the  profits  of  a  business,  but  is  not  known 
as  a  member  of  the  firm."  A  dormant  partner  is  one  "taking  do  part 
in  the  management  of  the  partnership."  Lindley  on  Fartn.  111.  "  We 
thiuk,  however,  the  word  implies  both  the  quality  of  secrecy  and 
inactivity."     Pars,  on  Partn.  §  3. 

In  National  Rank  v.  Thomas,  47  N.  Y.  15,  19,  the  court  said:  "A 
dormant  partner  is  one  who  takes  no  part  in  the  business  and  whose 
connection  with  it  is  unknown.  Both  secrecy  and  inactivity  are 
implied  by  the  word."  As  the  court  cited  North  v.  Bliss,  30  N.  Y. 
374,  as  well  as  other  authorities  in  support  of  the  definition  given, 
it  is  clear  that  it  did  not  understand  or  intend  that  the  North  case 
should  have  the  effect  of  altering  a  rule  which  had  been  long  settled 
as  asserted  by  it.  It  follows  that  one  occupying  such  a  relation  to 
a  partnership  need  not  give  notice,  because,  his  connection  with  the 
firm  not  having  been  known,  it  cannot  have  contributed  in  any  degree 
towards  establishing  the  credit  of  the  firm,  and,  consequently,  his 
withdrawal  could  not  take  away  a  single  element  which  helped  to 
build  up  the  business  reputation  and  credit  of  the  partnership.  Such 
we  deem  the  rule,  and  it  should  not  be  extended.  Credit  is  a  matter 
of  such  importance  iu  the  mercantile  world,  and  the  fiuancial  stand- 
ing of  any  partner  may,  through  various  sources,  be  so  readily  com- 
mingled with  that  of  his  firm  that  it  is  essential  that  he  should  be 
inquired  to  take  the  precaution  of  giving  notice  of  withdrawal,  unless 
it  clearly  appears  that  his  connection  with  the  firm  did  not  add  to 
its  reputation  for  responsibility. 

It  is  not  attempted  here  to  establish  a  partnership  liability  against 
Harris  on  the  ground  of  estoppel,  which  would  have  burdened  the 
plaintiff  with  the  necessity  of  establishing  that  he  held  himself,  or 
knowingly  permitted  another  to  hold  him  out  as  a  partner;  that  the 
plaintiff  had  knowledge  of  such  holding  out,  and  was  induced  thereby 
to  create  the  debt.  And  the  authorities  applicable  to  such  a  situa- 
tion, of  which  Thompson  v.  First  Nat.  Bank,  111  U.  8.  529,  is  a 
type,  need  not  be  considered. 

The  written  agreement  entered  into  between  the  Bloods  made  the 
parties  actual  partners.     It  neither  limited  the  liability  or  agency  of 


400  EIGHTS    AND    REMEDIES    OF   CREDITORS.  [CHAP.  V. 

either.  It  did  not  suggest  that  Harris'  connection  with  the  firm  should 
be  kept  secret.  It  did  not  provide  that  Harris  should,  as  to  its  busi- 
ness, be  wholly  inactive.  It  required  each  of  the  Bloods  to  give  his 
entire  time  and  attention  to  the  business,  for  which  each  was  to  be 
paid  $600  per  annum.  While  as  to  Harris,  who  was  engaged  in  other 
business,  it  was  agreed  that  he  should  "be  consulted  in  the  business, 
and  all  plans  and  operations  of  the  firm  shall  be  made  and  done  with 
the  advice  of  the  firm:  and  the  said  N.  C.  Harris  is  to  have  and 
receive  from  the  firm  $100  per  year  for  his  services  for  the  care  and 
assistance  which  he  may  render  to  the  firm  without  giving  his  per- 
sonal attention  to  the  business." 

The  agreement,  therefore,  does  not  indicate  that  it  was  the  inten- 
tion of  the  parties  that  Harris  should  be  a  secret  partner,  sharing  in 
the  profits  as  a  reward  for  his  contribution  to  the  capital,  without 
contributing  in  any  other  manner  to  the  standing  and  business  of  the 
firm.  Neither  was  he,  in  fact,  inactive  during  the  seven  years  that 
elapsed  before  his  withdrawal.  While  he  did  not  engage  in  the  pur- 
chase of  material,  or  the  sale  of  manufactured  articles,  he  did  take 
part,  to  some  extent,  in  the  financial  management  of  the  partnership, 
and  in  the  settlement  of  controversies,  in  which  he  wrote  letters  over 
his  own  signature  as  well  as  that  of  the  firm.  During  some  portions 
of  the  partnership  period  he  was  frequently  about  the  shops,  at  times 
nearly  every  day,  looking  over  the  work,  and  occasionally  speaking 
to  the  different  foremen  about  it.  Neither  did  his  partners  keep 
secret  the  fact  of  his  connection  with  the  firm. 

John  C.  Blood  testified:  "  I  presume  it  was  known  by  quite  a  num- 
ber that  Mr.  Harris  was  a  member  of  the  firm  of  Blood  &  Co. ;  if  a 
person  asked  me  who  had  a  right  to  know,  I  told  them ;  those  who 
had  a  right  to  know  were  the  men  dealing  with  us,  and  the  men  who 
were  dealing  with  us  who  asked  me  were  told  that  Mr.  Harris  was 
a  member  of  the  firm;  I  couldn't  tell  you  how  many  I  did  tell." 
Samuel  N.  Blood  testified:  "Q.  Was  his  connection  with  the  firm 
kept  secret  by  you,  or  by  anybody  else,  to  your  knowledge?  A.  It 
was  not  by  me  at  all.  Q.  Did  you  tell  persons  inquiring  that  he  was 
a  member  of  the  firm?  A.  I  did,  sir.  Q.  And  talked  of  it  with 
persons  doing  business  with  you  generally?  A.  I  did,  sir,  whenever 
the  question  came  up." 

Again,  the  adoption  of  the  firm  name  of  Blood  &  Co.  is  in  opposi- 
tion to  the  claim  of  dormancy  on  the  part  of  Harris.  A  dormant 
partner  is  one  who  becomes  such  by  a  secret  arrangement,  while  his 
associates  are  held  out  to  the  world  as  sole  proprietors  and  managers 
of  the  business.  Beecher  v.  Bush,  49  Mich.  188,  203.  If  the  busi- 
ness had  been  carried  on  under  the  firm  name  of  Blood  &  Blood,  or 
Blood  Bros.,  then  the  Bloods  would  have  been  held  out  as  comprising 
the  entire  firm.  But  the  words  "&  Co."  indicate  an  agency,  and  that 
a  principal  or  principals  are  undisclosed,  and,  if  credit  is  given,  the 
law  presumes  that  it  was  given  to  all  the  principals. 


§  1.]  REMEDIES    AGAINST    DORMANT    PARTNERS.  401 

In  Shamburg  v.  Ruggles,  83  Pa.  St.  148,  the  court  say:  "If  A., 
B.,  &  C.  enter  into  articles  of  association,  and  agree  that  the  business 
shall  be  conducted  by  A.,  and  in  his  name  alone,  B.  and  C,  in  such 
case,  are  dormant  partners,  and  though  liable  for  the  debts  and  obli- 
gations of  the  firm,  during  its  continuance,  are  not  so  liable  for 
del  its  after  its  dissolution,  although  notice  of  such  dissolution  may 
not  have  been  given  to  the  public,  or  those  previously  dealing  with 
it,  for  it  is  to  be  presumed  that  credit  was  given  upon  the  responsi- 
bility of  A.  alone,  and  uot  upon  that  of  B.  and  C.  If,  however,  the 
business  be  conducted  in  the  name  of  A.  &  Co.,  a  different  presump- 
tion arises,  for  then  it  is  supposed  that  credit  is  given  not  to  A. 
alone,  but  to  all  those  composing  the  company;  in  other  words,  to 
the  firm,  and  not  to  any  one  individual  of  it.  In  such  case,  if  B.  or 
C.  retire,  notice  must  be  given  to  those  dealing  with  the  firm,  or  he 
will  continue  to  be  liable  for  the  debts  thereof,  subsequently  con- 
tracted with  former  creditors,  who  may  be  ignorant  of  the  dissolu- 
tion." To  the  same  effect  is  the  reasoning  of  the  court  in  Deford  & 
Co.  v.  Reynolds,  36  Pa.  St.  325;  Pordrasnik  v.  Martin,  25  111.  App. 
300;  Dering  v.  Flanders,  49  N.  H.  225;  Clark  v.  Fletcher,  96  Pa. 
St.  416. 

Notwithstanding  the  terms  of  the  agreement  of  partnership,  the 
adoption  of  a  firm  name  which  did  not  exclude  the  defendant,  the 
announcement  by  each  of  the  Bloods  to  those  making  inquiries  and 
having  dealings  with  the  firm  that  Harris  was  one  of  the  partners, 
and  the  further  fact  that  he,  to  some  extent,  participated  in  the  settle- 
ment of  accounts  and  the  financial  management  of  the  business,  — 
facts  which,  standing  alone,  determine  that  Harris'  status  in  the  firm 
was  that  of  an  ostensible  partner,  —  it  is  insisted  that  other  evidence 
presented  on  the  part  of  defendant  authorized  a  submission  to  the 
jury  of  the  question  whether  he  was  a  dormant  partner. 

The  evidence  relied  on,  in  support  of  such  position,  was:  1.  That 
it  was  said  at  the  time  of  the  formation  of  the  partnership  that  it 
should  not  be  made  public  —  "should  not  be  talked  about  at  all." 
2.  The  testimony  of  a  number  of  witnesses  residing  in  that  locality, 
some  of  whom  had  had  dealings  with  the  firm  of  Blood  &  Co.,  to  the 
effect  that  they  did  not  know  that  Harris  was  a  partner. 

This  evidence,  it  is  asserted,  tended  to  show  that  his  relation  to  the 
firm  of  Blood  &  Co.  was  not  generally  known.  It  may  be  observed, 
in  passing,  that  one  of  the  Bloods  denied  that  there  was  any  under- 
standing, at  the  formation  of  the  partnership,  that  the  fact  of  Harris' 
membership  should  not  be  talked  about,  and  evidence  was  adduced, 
on  the  part  of  the  plaintiff,  for  the  purpose  of  showing  that  it  was  quite 
generally  known  in  the  community  that  Harris  was  a  member  of  tin; 
firm.  For  the  purpose  of  this  review,  however,  the  plaintiff's  answer- 
ing evidence  cannot  be  considered,  as  we  are  to  determine  whether 
the  defendant's  evidence  was  of  such  a  character  as  to  authorize  a 
jury  to  find  that  he  was  a  dormant  partner,  notwithstanding  the  facta 

26 


402  RIGHTS   AND   REMEDIES    OF   CREDITORS.  [CHAP.  V. 

which,  if  standing  alone,  we  have  asserted  require  a  holding  that  he 
was  in  law  an  ostensible  partner. 

The  agreement  of  partnership  was  reduced  to  writing.  It  does  not 
in  any  manner  suggest  that  the  membership  of  Harris  was  to  be  kept 
from  the  public.  It  purports  to  embrace  the  entire  agreement,  and 
the  defendant  has  not  attempted  to  show  that  in  reducing  the  agree- 
ment of  the  parties  to  writing  any  thing  was  omitted  by  mistake  or 
otherwise  which  had  been  agreed  upon.  It  is  not  asserted  that  this 
so-called  understanding  was  made  a  part  of  the  original  contract. 
It  is  not  pretended  that  the  parties  made  a  subsequent  agreement 
founded  upon  a  new  consideration.  It  doe3  not  clearly  appear  that 
the  matter  was  spoken  of  in  the  presence  of  all  the  parties,  much  less 
assented  to,  for  Samuel  N.  Blood  says  he  does  not  remember  any  such 
thing,  and  was  not  a  party  to  any  such  agreement,  and  Harris'  evi- 
dence does  not  necessarily  include  him.  Harris'  testimony  on  the 
subject,  and  the  whole  of  it  is  comprised  in  an  answer  to  a  single  ques- 
tion. "  Q.  Now  you  may  tell  me,  at  the  time  you  entered  into  this 
partnership,  was  anything  said  between  you  as  to  whether  this  should 
be  made  public?  A.  There  was,  sir;  it  was  not  to  be  talked  about 
at  all."  It  is,  we  think,  clear  that  this  evidence  cannot  be  permitted 
to  effect  a  change  in  the  legal  relation  which  the  parties  assumed  in 
writing  and  by  subsequent  conduct. 

Neither  can  a  general  partner  who,  in  order  to  relieve  himself  from 
a  liability  which  attaches  to  an  ostensible  partner,  assumes  the  bur- 
den of  proving  that  he  was  a  dormant  partner,  be  deemed  to  have  so 
well  borne  it  as  to  destroy  the  legal  effect  of  acts  of  the  character 
disclosed  by  this  record,  by  the  testimony  of  his  neighbors  and  others 
given  years  after  the  dissolution,  to  the  effect  that  they  did  not  know 
until  after  the  happening  of  that  event  that  he  was  ever  a  member  of 
the  firm,  supplemented  by  the  expression  of  his  own  opinion  that  not 
one  in  ten  in  his  vicinity  knew  of  it.  The  question  is  not  whether 
one  knew  it,  or  nearly  all,  but  whether  by  agreement  —  the  adoption 
of  a  firm  name  —  and  subsequent  conduct  he  so  held  out  the  Bloods 
as  the  only  members  of  the  partnership  as  to  prevent  his  name  from 
contributing  to  the  credit  and  standing  of  the  firm.  If  he  did  not, 
then  he  must  be  visited  with  the  legal  consequences  of  his  failure  to 
give  notice  to  those  who  had,  prior  to  his  withdrawal,  transacted 
business  with  the  firm,  and  the  lack  of  information  on  the  part  of 
some  or  many  persons  will  not  operate  to  shield  him  from  it. 

The  plaintiff,  it  seems,  did  not  know  that  Harris  was  a  member  of 
the  firm,  but  that  fact  cannot  avail  the  defendant,  because,  at  the 
time  of  the  commencement  of  the  dealings  with  the  plaintiff,  he  was 
"an  ostensible  and  not  a  secret  partner,  and  was  such  as  to  all  per- 
sons dealing  with  the  firm,  and  his  liability  to  the  plaintiff  is  not 
changed  by  the  fact  that  the  plaintiff  did  not  know  that  he  was  a 
partner.  He  trusted  the  co-partnership,  whoever  the  partners  might 
be  who  composed  it."     Howell  v.  Adams,  68  N.  Y.  314. 


§2.]  SEPARATE   CREDITORS   AT   LAW.  403 

This  position  is  not  only  supported  by  authority,  but  is  well  founded 
in  the  methods  largely  adopted  in  business  circles  for  the  purpose  of 
ascertaining  whether  credit  shall  be  given.  The  competition  in  busi- 
ness, and  the  rapidity  with  which  orders  must  be  filled,  make  it  neces- 
sary for  business  houses  to  promptly  ascertain  whether  credit  shall 
be  given.  This  necessity  has  contributed  to  the  establishment  of 
agencies  which  undertake  to  ascertain  the  financial  condition  of  cor- 
porations, firms,  and  individuals  engaged  in  business.  The  inquiry 
addressed  naturally  is,  what  is  the  financial  condition  of  Jones  A; 
Co.  ?  For,  having  no  acquaintance  with  the  individuals  comprising 
the  firm,  information  as  to  membership  does  not  aid  the  inquirer.  So 
in  this  case,  the  plaintiff's  president  testified  that  no  inquiry  was 
made  as  "  to  who  constituted  the  firm  of  Blood  &  Co.  .  .  .  We  thought 
the  credit  of  Blood  &  Co.,  when  we  first  commenced  dealing  with 
them,  was  good ;  we  inquired,  and  ascertained  that  the  credit  of  the 
firm  was  good." 

The  judgment  should  be  reversed. 

All  concur  with  Parker,  J.,  except  Haight,  J.,  dissenting,  and 
Follett,  Cn.  J.,  not  sitting. 

Judgment  reversed.1 


§  2.    Separate  Creditors  at  Law. 

EIGHTH  NAT.   BANK  v.  FITCH. 

49  N.  Y.  539.     1872. 

Action  for  a  false  return  b}'  a  sheriff.  From  a  judgment  in  favor 
of  defendant  entered  on  the  report  of  a  referee,  and  affirmed  at  general 
term,  the  plaintiff  appealed  to  this  court. 

JV.   C.  Moak,  for  the  appellant. 

Samuel  Hand,  for  the  respondent. 

Grover,  J.  In  addition  to  proving  the  return  of  nulla  bona  upon 
the  execution,  to  entitle  the  plaintiff"  to  recover,  it  was  necessary  for 
him  to  prove  that  the  execution  debtors  had  property  out  of  which  the 
execution,  or  some  part  thereof,  might  have  been  collected.  The  exe- 
cution was  against  two  of  three  partners.  There  was  no  proof  tending 
to  show  that  either  of  them  had  any  property  subject  to  levy  except  the 
interest  in  the  partnership  stock  of  goods,  amounting  to  about  $6,000. 
The  execution  was  received  by  the  defendant  for  collection  on  the  27th 
of  February,  1867,  and  a  levy  made  upon  the  interest  of  the  debtors 
in  the  stock  on  the  28th.  This  was  sufficient  'prima  facie  to  estab- 
lish a  right  of  recover}'.  In  answer  to  this  case  the  defendant  proved 
that,  in  March  thereafter,  several  attachments  against  all  the  members 

1  The  statement  of  facts  has  been  abridged,  and  the  dissenting  opinion  is  omitted 


404  EIGHTS   AND    REMEDIES    OF   CREDITORS.  [CHAP.  V. 

of  the  firm  were  placed  in  his  hands  for  service  ;  that  he  levied  the 
same  upon  the  stock,  and  that  thereafter  judgments  were  recovered  and 
executions  issued  against  all  the  partners  to  the  defendant  for  collec- 
tion, to  an  amount  much  larger  than  the  value  of  the  goods  of  the  firm, 
which  the  defendant  sold  and  applied  upon  tne  last  mentioned  execu- 
tions. The  first  inquiry  is  whether  this  is  a  defence  to  the  case  made 
by  the  plaintiff.  No  question  is  made  as  to  the  right  of  a  sheriff  to 
return  an  execution  unsatisfied  when  all  the  property  liable  thereto  is 
incumbered  by  prior  liens  to  an  amount  greater  than  its  value.  All 
the  property  subject  to  the  execution  in  the  present  case  was  the  inter- 
est of  the  debtors  in  the  property  of  the  partnership.  This  interest 
was  subject  to  levy  and  sale  upon  the  execution.  Smith  v.  Orser,  42 
N.  Y.  132.  But  the  title  acquired  by  the  purchaser  would  not  be  any 
absolute  interest  in  the  property  ;  the  remaining  partners  having  a 
right  to  have  the  whole  applied,  if  necessaiy,  to  the  payment  of  the 
debts  of  the  firm.  Walsh  v.  Adams,  3  Denio,  125  ;  Scrugham  v. 
Carter,  12  Wend.  131,  and  cases  cited;  Story  on  Partnership,  §  97. 
The  right  of  the  plaintiff,  under  his  execution,  was  subordinated  to  the 
right  of  the  other  partner,  and  also  to  those  of  the  firm  creditors,  to 
have  the  property  applied  in  payment  of  the  partnership  debts,  if 
necessaiy  for  that  purpose.  When  the  attachments  and  executions 
as:ainst  all  the  members  of  the  firm  came  to  the  hands  of  the  sheriff, 
and  the  attachments  had  been  levied,  they  constituted  liens  upon  the 
property  prior  to  that  of  the  plaintiffs  against  two  of  the  members  of 
the  firm,  although  the  latter  was  first  received  and  levied.  Coover's 
Appeal,  29  Pa.  St.  14.  The  sheriff  was  therefore  right  in  applying 
the  proceeds  of  the  sale  upon  executions  against  the  firm.  But  it 
was  insisted  by  the  counsel  for  the  appellant  that  it  was  the  duty  of 
the  sheriff  to  sell  the  interest  of  the  execution  debtors  upon  the  plain- 
tiff's execution  ;  and  that  for  the  breach  of  his  duty  the  plaintiff  had  a 
riomt  to  recover.  There  are  two  answers  to  this.  1st.  He  received  the 
attachments  and  executions  against  the  firm  within  sixty  clays  after 
the  receipt  of  the  plaintiffs  execution.  These  constituting  liens  upon 
the  entire  property,  and  it  being  the  duty  of  the  sheriff  to  sell  the 
property  absolutely  thereon,  and  the  liens  exhausting  the  whole,  there 
was  nothing  remaining  to  sell  upon  the  execution  of  the  plaintiff.  Had 
it  become  the  absolute  duty  to  sell  upon  the  plaintiff's  execution  before 
the  receipt  of  the  process  against  the  firm,  the  case  might  have  been 
different;  as,  had  the  property  been  sold  upon  the  plaintiff's  execution 
prior  to  that  time,  the  interest  of  the  execution  debtors  would  have 
passed  to  the  purchaser,  subject,  nevertheless,  to  the  rights  of  the 
firm  creditors  to  its  application  to  the  payment  of  the  debts  of  the  part- 
nership. 2d.  The  entire  property  being  insufficient  to  satisfy  the  prior 
liens,  the  plaintiff  sustained  no  injury  by  a  failure  to  sell  the  interest 
of  the  debtors  upon  his  execution,  unless  such  a  sale  would  have  pro- 
duced something  to  apply  thereon.  The  referee  found  as  a  fact,  in 
substance,  that  it  would  not  have  produced  anything.     It  is  insisted 


§  2.]  SEPARATE    CREDITORS   AT   LAW.  -iQj 

by  the  counsel  for  the  appellant  that  this  finding  was  wholly  unsup- 
ported by  evidence.     The  fact  that  the  firm  sold  81,000  of  the  goods 
after  the  lev}*  of  the  plaintiff's  execution,  before  the  process  against 
the  firm  came  to  the  hands  of  the  sheriff,  the  proceeds  of  which  were 
retained  by  them,  has  no  bearing,  except  that  this  amount  must  be 
included  in  the  assets  of  the  firm  in  determining  whether  there  would 
have  been  any  interest  remaining  to  the  purchaser  of  the  goods  at  a 
sale  upon  the  plaintiffs  execution,  after  payment  of  the  partnership 
debts  from  the  assets  of  the  firm,  for  the  reason  that  the  prior  liens 
would  much  more  than  absorb  this,  together  with  the  property  remain- 
ing unsold.     The  mode  of  determining  whether  any  and  what  interest 
would  have  been  acquired  by  a  purchaser  of  the  property,  had  it  been 
sold  under  the  plaintiff's  execution,  is  to  take  an  account  in  equity  of 
the  other  assets  and  of  the  debts  of  the  firm,  and  in  case  the  firm  debts 
are  paid  from  the  other  assets,  the  purchaser  would  be  entitled  to  the 
execution  debtor's  proportion  of  the  property  purchased,  as  in  what 
should  remain  after  payment   of  such   debts.      The  counsel    for   the 
appellant  insists  that  the  unconflicting  evidence  proved  that  the  other 
assets  of  the  firm  would  have  paid  the  firm  debts,  leaving  sufficient  of 
the  stock  of  goods,  if  sold  under  the  execution,  to  pay  the  whole  or 
some  part  of  the  execution.     The  answer  to  this  is  that  it  was  not  so 
proved.     The  assets  consisted  largely  of  debts,  either  notes  or  accounts 
(the  evidence  does  not  show  which)  due  the  firm  ;  that  two  years  had 
elapsed,  during  which  efforts  had  been  made  for  the  collection  of  the 
debts,  during  which  about  three-fifths  only  had  been  realized.     Under 
such  circumstances  there  is  no  presumption   that  the  residue  of  the 
debts  were  of  any  particular  value  ;  much  less,  that  they  were  all  good 
and  collectible.     Such  presumption  would  be  contrary  to  nearly  uni- 
versal experience  in  such  cases.     While  it  is  held  in  some  cases  that 
the  presumption  is  that  a  debtor  is  solvent,  yet  it  ceases  when  the 
debt  is  long  past  due,  and  unavailing  efforts  for  its  collection  have  been 
made.     The  defendant  having  shown  that  the  prior  liens  were  sufficient 
to  exhaust  all  the  property  subject  to  levy,  including  the  thousand 
dollars  sold  by  the  partnership,   the  onus  was  upon   the  plaintiff  to 
show  that  it  sustained  injury  by  such  sale.     This  it  failed  in  doing. 
The  counsel  insists  that  he  was  entitled  to  recover  for  the  reason  that 
it  appeared  that  all  the  partners  were  liable  for  the  payment  of  the 
debt  upon  which  the  judgment  was  recovered.     The  answer  to  this  is 
that  he  had  taken  judgment  against  two  only,  not  as  jointly  indebted 
with  the  third  partner,  but  as  his  only  debtors.     It  is  entirely  clear 
that,  under  this  judgment,   he  could  not  interfere  with  the  property 
of  the  third  person,  though  liable   for  the  payment  of  the  debt.     In 
any  view,   the    plaintiff   failed   to   show  any   right   of  recovery.      It 
being  the  duty  of  the   sheriff   to  sell  the   property   upon   the  execu- 
tions against   all  the   partners,   which   were    more    than   sufficient   to 
absorb   all   the    property,  including   that   sold    by  the    partners,  and 
there  being  no  proof  of  a  surplus  applicable  to  the  plaintiffs  debt, 


406  RIGHTS   AND   REMEDIES    OF   CREDITORS.  [CHAP.  V. 

in  case  none  bad  been  so  sold,  tbe  plaintiff  sustained  no  injury  by 
tbe  acts  of  tbe  defendant  under  its  execution.  Tbe  judgment  must 
be  affirmed,  with  costs. 

All  concur,  except  Church,  Ch.  J.,  not  voting. 

Judgment  affirmed. 


JOHNSON  v.  WINGFIELD  et  al. 

42  S.  W.  (Tenn.)  203.     1897. 

Barton,  J.  Tbis  cause  is  before  us  on  bill  and  demurrer.  Tbe 
demurrer  was  sustained' and  tbe  bill  dismissed.  Complainant  appealed, 
and  assigns  errors.  Tbe  main  question  presented  in  tbe  case  is  vvbetber 
in  tbis  State  specific  property  belonging  to  tbe  firm  is  subject  to  levy 
for  tbe  individual  debt  of  one  of  tbe  members  of  tbe  firm.  Tbe  case 
made  in  tbe  bill  substantially  is  as  follows  :  Tbe  complainant  sbows  and 
avers  tbat  be  bad  obtained  before  a  justice  of  tbe  peace  in  Hamilton 
County  two  judgments  against  tbe  defendant  Wingfield,  on  wbicb 
executions  bad  been  issued  and  certified,  in  pursuance  of  section  378G 
of  tbe  Code  of  Tennessee,  to  Hamblen  County,  wbere  executions  bad 
been  issued,  wbicb  were  placed  in  tbe  bands  of  a  constable,  and  by  him, 
on  tbe  2d  day  of  January,  1896,  levied  on  tbe  interest  of  Nisbet  Wing- 
field  in  a  lot  of  iron  pipe  and  otber  material,  tbe  property  of  the  firm  of 
J.  N.  Hazelburst  &  Co.,  a  firm  composed  of  J.  N.  Hazelburst  and 
Nisbet  Wingfield,  in  wbicb  firm,  it  is  alleged,  Hazelburst  and  Wingfield 
were  equal  partners.  It  is  further  alleged  tbat  tbe  interest  so  levied  on 
in  tbe  partnership  property  was  advertised  and  sold  according  to  law  by 
tbe  constable  making  tbe  levy  at  public  sale  in  tbe  city  of  Morristown, 
on  tbe  5th  of  January,  1896.  It  is  further  charged  that  J.  N.  Hazel- 
burst and  Wingfield  continued  as  partners,  under  the  firm  name  of 
Hazelburst  &  Co.,  until  January  7, 1896,  when  the  firm  dissolved  ;  upon 
what  terms  and  conditions,  complainant  does  not  know,  but  it  is  charged 
that  there  was  no  partnership  settlement  had  between  the  partners,  and 
that  the  purpose  and  object  of  the  dissolution  of  the  partnership  was  to 
embarrass  and  defeat  the  collection  of  complainant's  execution.  It  is 
further  charged  that  on  January  7,  1896,  a  new  partnership  was  organ- 
ized, under  the  old  firm  name  of  J.  N.  Hazelburst  &  Co.,  composed  of 
J.  N.  Hazelburst  and  D.  R.  H.  Plant,  and  that  this  firm  was  engaged  in 
the  completion  of  the  waterworks  for  the  city  of  Morristown,  under  the 
contract  made  for  that  purpose  by  the  old  company.  It  is  charged 
that,  after  the  sale  was  made,  the  statement  was  made  by  one  of  the 
attorneys  of  Hazelburst,  a  member  of  both  firms,  who  had  been  present 
and  made  a  bid  at  tbe  sale  of  the  property,  that  Wingfield  was  no  longer 
a  member  of  the  firm,  and  had  no  interest  in  any  other  property  which 
belonged  to  the  old  firm  of  Hazelhurst  &  Co.  It  charged  that  the  new 
firm,  composed  of  Hazelhurst  and  Plant,  had  full  knowledge  of  the  com- 


§  2.]  SEPARATE    CREDITORS    AT   LAW.  407 

plainant's  levies  ;  that  the  property  levied  on  was  reasonably  worth  in 
the  market,  at  the  time  of  the  levy,  S3, 000  ;  and  that  Wingfield's  interest 
in  the  property  was  at  the  time  of  the  sale  and  purchase  by  the  com- 
plainant, who  was  the  purchaser  at  the  execution  sale,  reasonably  worth 
$1,500;  that  complainant  notified  Hazelhurst  &  Co.  not  to  move  or 
interfere  with  the  pipe  until  his  interest  was  paid  for ;  that  Hazelhurst 
&  Co.  disregarded  the  notice  and  complainant's  rights  in  the  property, 
and  converted  the  same  to  their  use,  in  the  construction  of  the  water- 
works, a  few  days  after  complainant  had  purchased  Wingfield's  interest 
in  the  partnership  propert}- ;  that  complainant  was  damaged  by  the  con- 
version fully  Si, 500.  It  is  further  shown  that  the  new  members  of  the 
firm  of  Hazelhurst  &  Co.  were  non-residents;  that  they  had  a  fund 
coming  to  them  in  the  First  National  Bank  of  Morristown,  against 
which  an  attachment  was  prayed  and  issued.  The  prayer  of  the  hill  is 
that  a  partnership  account  be  had  and  stated  between  the  defendant 
J.  X.  Hazelhurst  and  Nisbet  Wingfield,  so  as  to  ascertain  what  interest 
"Wing-field  had  in  the  partnership  property  described  in  the  levies,  and 
the  value  of  that  interest  at  the  time  the  levies  were  made,  at  the  time 
of  the  sale,  and  also  at  the  time  when  the  property  was  converted  by 
J.  X.  Hazelhurst  &  Co.,  and  for  a  decree  against  J.  XT.  Hazelhurst  & 
Co.  and  R.  H.  Plant,  or  the  new  firm  of  Hazelhurst  &  Co.,  for  the 
amount  so  found,  and  for  general  relief.  It  is  also  shown  in  the  bill 
that  the  old  firm  of  Hazelhurst  &  Co.  had  other  property  at  the  time  of 
the  levies  besides  that  levied  on,  it  appearing  that  certain  propert}'  was 
levied  on  belonging  to  the  firm,  and  that  was  released,  and  levy  made 
on  other  property.  The  proceedings  before  the  justice  of  the  peace,  the 
executions,  and  the  return  of  the  officer,  are  made  exhibits  to  the  bill. 

The  officer's  return,  in  substance,  is  that  he  levied  on  all  the  right, 
title,  and  interest  which  Nisbet  Wingfield,  as  member  of  the  firm  of 
J.  N.  Hazelhurst  &  Co.,  had  in  the  following  personal  property,  situated 
and  being  in  Morristown,  Tenn.,  on  the  Southern  Railway's  side  track, 
to  wit,  25  iron  fire  plugs,  etc.,  described  in  the  paper.  Both  executions 
also  show  due  sale  of  the  property  after  advertising,  the  property  in 
each  instance  being  bid  in  by  the  complainant,  Johnson,  for  Si 5. 

The  defendants  filed  a  demurrer  and  answer,  the  demurrer  being 
incorporated  in  the  answer  ;  the  substance  and  point  of  demurrer  being 
that  a  levy  cannot  be  made  on  a  certain,  specific  part  of  partnership 
property  for  the  individual  debt  of  one  of  the  members  of  the  firm,  as 
the  bill  shows  was  done  in  this  case,  and  that,  to  reach  a  partner's 
interest  in  partnership  property,  the  levy  must  be  made  upon  all  the 
partnership  property.  The  point  is  made  that  the  partnership  owned 
as  an  entirety  the  particular  assets  of  the  partnership,  and  had  a-  right 
to  use  the  same  in  the  business  of  the  partnership  ;  that  the  purchaser 
would  be  required  simply  to  take  the  interest  of  the  debtor  partner,  and 
would  have  no  right  to  maintain  this  bill  for  trover  or  conversion  of  the 
specific  property  levied  on.  The  answer  filed  denies  that  the  interest 
of  Wingfield  at  the  time  of  the  lev}-  amounted  to  anything,  and  asserts 


408  EIGHTS    AND    REMEDIES    OF    CREDITORS.  [CHAP.  V. 

there  was  an  excess  of  liabilities  at  that  time  over  assets.     As  stated, 
the  demurrer  was  sustained  and  the  bill  was  dismissed.  .  .  . 

The  main  question  presented  has  been  before  our  Supreme  Court  in 
a  number  of  cases,  and  the  subject  seems  to  be  surrounded  b}'  many 
perplexities.  One  of  the  earlier  and  the  leading  case  in  this  State  o  - 
the  subject  is  that  of  Haskins  v.  Everett,  4  Sneed,  531.  This  was  ar: 
action  of  replevin  brought  by  Haskins  &  Reynolds  against  James 
Everett,  to  recover  certain  personal  property  belonging  to  the  firm  or 
Haskins  &  Reynolds,  which  had  been  levied  on  b}-  an  execution  in  the 
hands  of  a  constable,  issued  on  a  judgment  recovered  by  one  Browden 
against  Haskins  for  his  individual  debt.  Judge  Caruthers,  in  his 
opinion,  stated  that  the  question  was  whether  partnership  property  can 
be  taken  in  execution  and  sold  for  the  private  debt  of  one  of  the  mem- 
bers. The  circuit  judge  held  that  it  could,  and  gave  judgment  for  the 
value  of  the  property,  and  also  for  $43,  damages  for  the  detention  of 
the  property  which  had  been  taken  in  the  action,  against  the  complain- 
ants, Haskins  &  Reynolds  ;  and  this  judgment  was  affirmed  b}-  the 
Supreme  Court.  Judge  Caruthers,  in  his  opinion,  says  :  "Whatever 
doubts  and  difficulties  ma}-  have  existed  on  this  subject,  the  law  is  now 
well  settled  that  partnership  property  may  be  seized  and  the  interest  of 
one  partner  sold  for  his  individual  debt.  The  purchaser,  however,  only 
takes  the  interest  of  such  judgment  debtor  after  the  settlement  and 
adjustment  of  the  partnership  accounts,  and  not  his  proportion  of  the 
property  sold.  What  that  interest  is  cannot  generally  be  ascertained 
Until  a  final  adjustment  and  settlement  of  the  partnership  concerns.  The 
effect  of  the  sale  and  purchase  is  only  to  place  the  purchaser  in  the 
shoes  of  the  partner  whose  interest  he  buys,  and  make  him  a  tenant  in 
common  with  the  other  partners.  This  is  a  necessary  consequence  of 
the  rule  that  each  partner  has  a  lien  upon  the  firm  property,  as  well  for 
the  debts  due  by  the  firm  as  his  own  share  and  proportion  thereof.  The 
judgment  creditor  or  the  purchaser  under  him  must  take  the  interest 
sold  subject  to  all  such  liens  and  claims.  To  ascertain  the  interest  sold, 
the  purchaser  or  any  of  the  other  partners  may  file  a  bill  for  the  settle- 
ment of  the  partnership.  The  great  uncertainty  of  the  value  of  the 
interest  purchased  (for  it  may  be  nothing,  or  more  or  less  than  the 
amount  bid)  does  not  affect  the  principle."  In  this  case  it  will  be 
noted  that  the  Supreme  Court  gave  judgment  against  the  firm  for  $43, 
damages  for  the  retention  of  the  property  belonging  to  the  firm.  While 
it  is  not  specifically  stated  that  the  property  levied  on  was  only  a  part 
of  the  property  belonging  to  the  firm,  we  think  it  sufficiently  appears 
that  it  was  certain,  specific  property. 

In  the  case  of  Saunders  v.  Bartlett,  12  Heisk.  317,  a  bale  of  cotton, 
which  was  held  to  be  the  property  of  Joyner  &  Son,  had  been  levied  on 
by  an  attachment  at  the  suit  of  Rolfe  Saunders,  for  a  debt  of  Rodney 
Joyner,  Jr.,  the  second  member  of  the  firm  of  Joyner  &  Son.  It  was 
sought  to  be  replevied  by  Bartlett,  Gould,  &  Heath,  to  whom  the  prop- 
erty had  been  consigned.     The  decision  was  against  the  plaintiffs  in 


§  2.]  SEPARATE    CREDITORS    AT   LAW.  409 

the  replevin  suit.  But  two  grounds  were  stated  for  the  decision  in  the 
opinion  :  First.  That  there  was  no  right  of  action  in  the  complainant, 
because  the  property  was  held  to  be  the  property  of  Joyner  tV-  Sou. 
Second.  Judge  Freeman  said,  in  delivering  the  opinion:  "Assuming 
that  the  owners  were  partners,  it  presents  the  question  whether  the 
sheriff  can  lew  an  attachment  against  one  of  the  partners  on  the  prop- 
erty of  the  firm,  and  take  possession  by  virtue  of  such  levy.  We  think 
it  settled  in  Tennessee  that  he  may  do  so  under  an  execution  ;  but  he 
can  sell  only  the  interest  of  the  partner  against  whom  the  process 
issued.  Haskins  v.  Everett,  1  Sneed,  531.  The  same  doctrine  was 
laid  down  in  a  case  of  joint  ownership.  Rains  c.  McXairy,  1  Humph. 
358.  Such  seems  to  be  the  weight  of  authority  in  most  of  the  other 
States  of  the  Union,  as  well  as  in  England.  In  fact,  it  would  seem  to 
follow  as  a  matter  of  necessity  from  allowing  the  interest  of  the  partner 
to  be  sold  or  taken  at  all  under  process  against  him.  We  therefore 
hold  that  the  attachment  was  properly  levied  on  the  interest  of  Rodney 
Joyner,  Jr.,  whether  he  was  a  partner  or  joint  owner  ;  that  the  sheriff 
was  properly  in  possession  of  the  cotton  ;  and  that  the  plaintiffs  below 
had  not  the  right  to  possession  as  against  him." 

In  the  case  of  Morrow  v.  Fossick,  3  Lea,  129,  it  is  said  the  right  of 
the  creditor  to  seize  the  firm  property,  either  by  execution  or  attach- 
ment, for  the  debt  of  the  member  of  the  firm,  and  sell  or  appropriate 
the  debtor  partner's  interest,  and  ordinarily  to  file  a  bill  in  advance  to 
ascertain  that  interest,  is  conceded  ;  citing  Haskins  v.  Everett,  4  Sneed, 
531,  and  1  Story,  Eq.  Jur.  §  G77.  In  Bank  v.  Gray,  12  Lea,  459,  the 
case,  as  shown  by  the  opinion,  was  substantially  that  there  were  two 
firms  of  Gray  &  Co.,  known  as  the  old  and  the  new,  in  both  of  which 
one  T.  J.  Gray  was  a  partner.  The  old  firm  became  indebted  to  the 
bank,  the  complainant  in  the  suit ;  and  the  case  made  in  the  bill  was 
that  Gray  had  used,  in  the  business  of  the  new  firm,  the  property  and 
funds  of  the  old  firm.  Judge  Freeman  states  that  complainant  has 
sought,  based  on  these  facts,  a  decree  for  its  debts  against  Gray  &  Co., 
the  old  firm,  and  also  the  new  firm,  and  has  obtained  an  attachment 
against  the  new  firm  attaching  all  its  effects  and  assets,  and  prays  that 
these  properties  be  sold,  or  a  sufficiency  to  pay  the  bank,  and  the  pro- 
ceeds applied  to  the  payment  of  the  debts  stated  in  the  bill  of  Gray  as 
Gray  &  Co.,  the  old  firm.  He  states  this  attachment  and  impounding 
of  these  assets  has  no  foundation  on  which  it  could  have  been  sustained 
had  proper  steps  been  taken  by  the  defendants  to  defeat  it.  li  Gray 
was  simply  the  debtor  of  complainant,  and  was  a  partner  in  the  new 
firm  of  Gray  &  Co.,  of  which  Woodard  was  a  member.  This  certainly 
gave  him  no  right  to  have  the  latter  firm  wound  up  without  something 

DO  x 

more.  A  levy  on  the  interest  of  one  party  in  a  partnership,  either  of 
an  execution  or  an  attachment  levied  on  such  interest,  would  be  the 
basis  on  which  such  relief  could  be  asked,  in  order  that  the  creditor 
might  have  the  interest  of  his  debtor  ascertained  and  applied,  he  having 
a  fixed  lien  on  the  same  by  process."     "  But  we  know  of  no  principle  on 


410  EIGHTS   AND    EEMEDIES    OF   CREDITOES.  [CHAP.  V. 

which  a  simple  creditor  at  large  of  a  member  of  the  firm  has  such 
a  right." 

In  the  case  of  Boro  v.  Harris,  13  Lea,  47,  Judge  Cooper,  delivering 
the  opinion  of  the  court,  said  :  "  All  that  an  individual  creditor  of  either 
one  of  the  partners  could  reach  by  the  lev}'  of  an  execution,  or  which  a 
purchaser  could  acquire  under  an  execution  sale,  would  be  the  interest 
of  that  partner  dependent  upon  a  partnership  account.  Haskins  v. 
Everett,  4  Sneed,  531.  And,  if  the  ostensible  partners  had  in  fact  no 
interest  in  the  partnership  property,  the  creditor  or  purchaser,  if  there 
were  nothing  else  in  the  case,  would  take  nothing."  There  would 
appear  to  be  in  these  cases  some  confusion  of  principle. 

The  confusion  and  perplexity  in  which  this  question  is  involved  is  not 
confined  to  our  own  State,  but  is  found  in  the  annunciations  of  the  text 
writers  on  this  subject,  and  in  the  decisions  of  nearly  all  of  the  courts  of 
last  resort  of  the  United  States  and  in  England.  Mr.  Freeman,  in  his 
work  on  Executions  (2d  ed.  §  125),  in  treating  of  the  matter,  says: 
"It  is  universally  conceded  that,  except  where  some  statutor}'  provi- 
sion to  the  contrary  has  been  enacted,  the  interest  of  the  partner  is 
liable  to  an  execution  for  his  individual  debts.  .  .  .  Confessedly,  a  sale 
under  an  execution  against  one  partner  does  not  devest  the  title  of  the 
partnership  in  the  propert}-.  It  transfers  011I3*  such  interest  as  remains 
in  the  judgment  debtor  upon  the  settlement  and  adjustment  of  the 
affairs  of  the  partnership.  As  the  rights  of  the  partnership  are  para- 
mount, it  would  seem  that  they  would  preclude  the  officer  serving  the 
writ  from  taking  the  property  into  his  exclusive  possession,  even  for 
the  purposes  of  lev}'  and  sale.  And  this  view  has  been  maintained  with 
great  force  in  several  decisions  pronounced  in  the  Supreme  Court  of 
New  Hampshire.  The  authorities  elsewhere  are  almost  unanimous  in 
affirming  that  the  officer  may,  in  levying  on  the  interest  of  a  partner, 
assume  exclusive  possession  of  the  chattels  of  the  firm,  and  retain  it 
until  the  sale.  It  is  also  undoubted  that  the  interest  subject  to  execu- 
tion is,  at  least  in  equity,  in  no  respect  greater  than  that  held  by  the 
defendant ;  that  it  is  subject  to  the  paramount  claims  against  the  part- 
nership, and  is  in  fact  nothing  beyond  the  right  to  demand  an  account- 
ing, and  to  share  in  the  surplus  that  may  remain  after  all  the  partnership 
obligations  have  been  discharged.  Whether  the  levy  can  be  upon  any 
specific  part  of  the  goods  of  the  firm,  and  whether,  by  the  sale,  the  pur- 
chaser acquires  any  interest  in  the  property  sold,  beyond  the  right  to 
call  for  an  accounting,  are  questions  upon  which  the  authorities  are  not 
agreed.  The  earlier  cases  were  determined  when  partnerships  were 
regarded  as  mere  co-tenancies.  Hence  those  cases,  and  such  modern 
cases  as  have  been  controlled  by  them,  place  sales  under  execution  for 
the  separate  debt  of  a  co-partner  very  much  on  the  same  ground  as  a 
sale  for  a  separate  debt  of  a  co-tenant.  Therefore,  according  to  this 
view,  an  officer  can,  under  such  an  execution,  levy  upon  a  part  as  well 
as  upon  the  whole  of  the  chattels  of  the  firm  ;  and  it  can,  by  his  sale, 
transfer  a  moiety  of  the  legal  title,  together  with  the  right  to  take  and 


§  2. J  SEPARATE    CREDITORS   AT    LAW.  411 

hold  possession  against  the  other  partners,  leaving  them  without  an}' 
other  means  of  enforcing  the  rights  of  the  partnership  than  by  proceed- 
ings in  chancery.  But  the  courts  have  gradually  progressed  towards 
a  realization  of  the  true  nature  of  partnerships,  and  have  therefore  come 
to  understand  that  they  are  materially  different  from  co-tenancies.  A 
co-partner  has  no  right  to  any  specific  chattel  belonging  to  the  Gnu, 
nor  has  he  any  right  as  against  the  firm  to  take  or  hold  exclusive  pos- 
session of  any  such  chattel.  The  real  ownership  of  all  the  chattels  is 
vested  in  the  firm.  The  interest  of  each  partner  is  merely  a  right  to 
share  in  the  proceeds  of  these  chattels  after  all  the  partnership  obliga- 
tions have  been  satisfied.  Upon  what  principle  can  the  purchaser  at  an 
execution  sale  be  sustained  in  the  exercise  of  rights  to  which  the 
defendant  was  never  entitled?  Clearly,  upon  no  principle  whatever. 
The  precedents  made  at  an  early  day,  when  the  law  of  partnership  was 
imperfectly  understood,  are  losing  their  force  as  authorities.  Their 
place  is  being  supplied  by  a  line  of  decisions  destined  to  grow  in  favor 
and  in  number,  declaring  that  the  creditor  of  an  individual  partner 
cannot  sell  any  specific  article,  but  only  the  partner's  interest  in  the 
whole  of  the  partnership  assets,  and  that  the  purchaser  does  not  acquire 
the  right  to  hold  possession  of  the  property  purchased  as  against  the 
other  member  of  the  firm,  but  only  an  interest  in  the  proceeds,  after  the 
business  of  the  firm  shall  have  been  settled.  Though  the  ri<dit  of 
the  officer  to  seize  the  property  of  the  partnership  under  an  execution 
against  one  of  its  members  is  conceded,  it  must  be  exercised,  as  far  as 
possible,  in  harmony  with  the  rights  of  the  other  partners,  and  not  in 
hostility  to  them.  His  power  to  take  and  deliver  possession  of  the 
corpus  of  the  property  is  merely  incidental  to  the  right  to  reach  the 
interest  of  the  debtor,  and  is  to  be  exercised  only  as  a  means  to  that 
end.  Consequently,  if  he  exceeds  that  limit,  and  undertakes  to  inter- 
fere with  the  rights  of  the  other  partners  to  a  greater  extent  than  is 
necessary  to  reach  the  interest  of  the  debtor  partner,  and  dispose  of  it, 
as  when,  instead  of  selling  the  interest  of  the  debtor  partner,  he  under- 
takes to  sell  the  entire  property,  though  his  act  is  nugatory,  such  inter- 
ference renders  him  liable  as  a  trespasser  ab  initio."  In  the  same 
authority  (section  254)  it  is  said  :  "  Taking  possession  is  not  optional 
with  the  officer.  lie  must  take  possession,  or  in  some  way  subject  the 
property  to  his  control,  in  order  to  make  a  valid  levy  and  sale.  The 
levy  and  sale  must  b.e  consistent  with  the  defendant's  interest.  If  the 
levy  or  sale  purports  to  be  upon  an  estate  in  severalty,  this  is  an  inva- 
sion of  the  rights  of  the  co-tenants,  who  are  not  parties  to  the  writ,  for 
which  they  may  sustain  an  action  against  the  officer  making  it.  When 
the  defendant  is  a  member  of  a  co-partnership,  the  duty  of  the  officer 
must  be  ascertained  from  examining  the  decisions  of  his  own  State. 
The  majority  of  the  decisions  on  this  subject  are  based  on  the  false 
assumption  that  a  co-partnership  is  a  co-tenancy,  and  therefore  sustains 
the  officer  in  taking  exclusive  possession  of  the  partnership  property 
under  a  writ  against  one  member  alone.     [Citing,  among  other  cases, 


412  EIGHTS    AND   EEMEDIES    OF   CREDITORS.  [CHAP.  V. 

as  authority  for   this    statement,  the   case   of  Haskins  v.  Everett,  4 
Sneecl.  531.]     The  minority,  based  on  more  correct  perceptions  of  the 
nature  of  a  co-partnership  and  the  rights  of  its  respective  members,  will 
not  permit  a  writ  against  one  member  to  be  used  to  seize  all  the  assets 
and  to  suspend  the  business  of  the  firm.     The  law  with  respect  to  the 
levy  of  a  writ  on  a  partner's  interest  in  firm  property  involves  many 
perplexities,  the  solution  of  which  is  worthy  of  legislative  aid.     To  deny 
the  right  to  make  such  a  levy  may  very  seriously  embarrass  creditors  of 
a  debtor  amply  able  to  discharge  their  debt ;  while  to  admit  the  right 
may  involve  the  co-partners,  and  perhaps  the  creditors  of  the  firm,  in 
very  serious  inconvenience  and  substantial  loss.     Where  the  levy  is 
permitted,  its  ultimate  effect  is  to  confer  on  the  purchaser  thereunder 
nothing  beyond  the  right  to  an  accounting.     This  is  all  the  judgment 
debtor  has,  and  therefore  all  he  can  transfer,  whether  the  transfer  be 
voluntary  or  involuntary.     Specific  chattels  constituting  a  part  of  the 
assets  cannot  in  several  of  the  States  be  seized  and  sold  under  a  writ 
against  one  of  the  partners.     In  other  States,  the  seizure  of  either  a 
part  or  the  whole  of  the  chattels  of  a  co-partnership  under  a  writ  against 
one  of  its  members,  and  the  exclusion  of  its  co-partners  from  their  pos- 
session, are  unauthorized,  and  warrant  an  action  of  trespass  against  the 
officer.     But  in  the  majority  of  the  States  the  right  and  duty  of  an 
officer  acting  under  a  writ  against  a  co-partner  are  the  same  as  when 
acting  under  a  writ  against  a  co-tenant.     He  may  seize  any  of  the 
property  in  which  the  defendant  has  an  interest ;  may  retain  possession 
until  the  sale  ;  and  may  then  deliver  possession  to  the  purchaser,  who, 
in  a  qualified  sense,  becomes  a  co-tenant  with  the  co-partners  who  were 
not  parties  to  the  writ.     Whether  the  latter  are  entitled  to  resume  pos- 
session in  the  event  that  the  property  is  needed  in  liquidating  the  part- 
nership liabilities,  or  for  other  partnership  purposes,  and,  if  so,  by  what 
remedies  their  rights  may  be  enforced,  are  unsolved  judicial  problems. 
Though,  by  the  laws  of  the  State  in  which  the  officer  is  acting,  he  may 
take  exclusive  possession  of  property  under  a  writ  against  one  of  its 
owners,  he  must  confine  his  levy  and  sale  to  the  interest  of  the  defendant. 
If  he  assumes  to  levy  upon  or  to  sell  the  whole  property,  his  act,  as 
against  the  partners  or  co-tenants  not  named  in  the  writ,  is  wrongful. 
They  may  regard  him  as  a  trespasser  upon  their  rights,  or  as  guilty  of 
an  unlawful  conversion  of  their  property.     He  may  be  sued  for  trespass 
or  conversion, "as  the  injured  co-tenants  may  elect" 

Mr.  Parsons,  in  his  work  on  Principles  of  Partnership,  also  discusses 
these  questions,  points  out  the  confusion,  and  says,  among  other  things 
(section  104)  :  "It  is  needless  to  state  that  a  system  cannot  be  coher- 
ent while  the  fundamental  principle  upon  which  it  rests  remains  un- 
settled. ...  An  attachment  by  a  separate  creditor  is  sustained  upon 
the  around  that  the  sheriff  could  seize  the  firm  stock,  and  sell  a  part- 
ner's  interest,  which  would  be  treated  as  a  moiety.  This  is  according 
to  the  theory  of  a  tenancy  in  common,  or  holding  by  several  titles  with 
joint  possession,  which  would  be  severed  by  execution,  and  the  pur- 


§  2.]  SEPARATE    CREDITORS    AT    LAW.  413 

chaser  vested  with  defendant's  title  and  possession.  This  practice  is 
unsound.  The  sheriff  can,  it  is  true,  seize  the  firm  stock  in  order  to 
sell  a  partner's  interest  in  it.  The  execution  fi.  fa.  required  a  tenable 
thing  for  it  to  operate  from  ;  but,  the  requirement  of  the  writ  being 
satisfied,  the  sheriff  must  not  disturb  or  remove  the  stock,  and  can  sell 
only  the  partner's  interest  in  it.  The  purchaser  acquires  no  right  to 
immediate  possession,  but  merely  a  claim  to  the  balance,  if  any  is  com- 
ing to  the  partner,  to  be  ascertained  by  an  account." 

In  17  Am.  &  Eng.  Enc.  Law,  p.  133G,  we  find  it  stated  :  "The 
interest  of  one  partner  in  the  partnership  property  may  be  attached  or 
taken  and  sold  on  execution  for  his  separate  debt ;  but  only  that  por- 
tion of  the  partnership  property  which  belongs  to  the  debtor  partner, 
after  paying  the  debts  due  to  the  firm  and  his  own  indebtedness  to  the 
firm,  can  be  sold.  The  duty  of  the  sheriff*  is  to  attach  or  lev}-  upon  the 
whole  of  the  partnership  effects,  or  so  much  of  them  as  may  be  requi- 
site to  satisfy  his  process  [citing  in  note  3,  for  this  statement,  cases 
from  Alabama,  Illinois,  Indiana,  Louisiana,  Mississippi,  New  York, 
Pennsylvania,  Texas,  Virginia,  and  California],  though  some  of  the 
States  permit  a  levy  on  specific  property  less  than  the  whole  [citing,  as 
authority  for  this  statement,  cases  from  Kansas,  Louisiana,  Maine, 
Missouri,  Xew  York,  New  Jersey,  Ohio,  and  Kentucky].  The  cred- 
itor acquires  no  legal  interest  in  the  property  levied  upon,  and,  until 
the  interest  of  the  debtor  becomes  a  share  in  common  in  the  buyer  by 
means  of  a  sale,  the  title  is  unaffected,  and  a  purchaser  from  the  firm 
would  get  a  title  unincumbered  by  the  levy  ;  and  even  a  judgment 
against  one  partner  is  not  such  a  lien  upon  the  real  estate  of  the  firm 
as  to  remain  an  incumbrance  after  a  sale  by  it.  These  principles  apply 
to  actions  brought  by  a  creditor  of  the  partnership  against  one  partner, 
or  to  an  attachment  or  levy  of  execution  by  a  partnership  creditor 
against  the  individual  interest  of  one  partner,  as  well  as  to  actions 
upon  claims  against  an  individual  partner."  On  page  1340  of  the  same 
book  we  find  it  stated  :  "  In  order  to  guard  against  intermediate  sales, 
and  to  make  the  levy  effectual,  the  sheriff  is,  as  a  general  rule,  required 
to  take  exclusive  possession  of  the  property  levied  upon  ;  such  posses- 
sion not  being  deemed  adverse  to  the  partnership,  and  the  property  in 
his  hands  being  subject  to  partnership  debts;"  citing,  as  authority  for 
this  statement,  cases  from  nearly  every  State  in  the  Union,  and  among 
others  the  Tennessee  cases  above  cited.  Continuing,  it  is  said:  "In 
some  States,  however,  the  theory  is  adopted  that,  as  the  debtor  partner 
is  not  entitled  to  exclusive  possession,  the  sheriff  is  not,  and  that, 
therefore,  it  is  sufficient  to  declare  that  there  is  an  attachment  or  exe- 
cution, designating  the  property  levied  upon,  or  otherwise,  according 
to  local  practice  ;  "  citing,  as  authority  for  this  statement,  cases  from 
Iowa,  Louisiana,  Massachusetts,  Michigan,  New  Hampshire,  New  York, 
North  Carolina,  Wisconsin,  and  the  case  of  Bank  v.  Carrollton  R.  R., 
11  Wall.  624.  Continuing,  it  is  said:  "A  sale  of  the  entire  interest 
in  the  property,   or  any  specific  part  of  it,  as  distinguished  from  the 


414  EIGHTS   AND    REMEDIES    OF    CREDITORS.  [CHAP.  V. 

interest  of  the  debtor  partner,  will  make  the  officer  a  trespasser  ab 
initio."  It  is  further  stated  on  page  1343,  same  book:  "The  buyer 
at  an  execution  sale  acquires  the  same  title  that  the  debtor  partner  had, 
subject  to  the  partnership  debts  and  equities  between  the  partners  ;  the 
claim  of  the  co-partners,  or  any  balance  found  due  them,  being  consid- 
ered as  a  debt,  in  determining  the  debtor  partner's  interest.  If  the  part- 
nership is  insolvent,  or  if  the  debtor's  share  is  absorbed  by  the  equities 
of  his  co-partners,  the  buyer  gets  nothing.  And  if  the  buyer  sells  or 
disposes  of  the  whole  property,  and  appropriates  the  proceeds,  he  is 
liable  for  conversion.  That  a  partnership  is  insolvent,  or  that  there  is 
no  surplus  for  the  debtor  partner,  does  not  make  the  lev}'  a  trespass. 
The  property  sold  continues  liable  for  the  joint  debts,  but  the  joint 
creditors  have  no  claim  upon  the  purchase  money." 

These  extracts  will  show  into  what  confusion  this  subject  has  fallen 
by  reason  of  the  early  decisions  in  all  the  States,  evidently  based,  as 
stated  by  the  text  writers  from  whom  we  have  quoted,  on  an  erroneous 
conception,  or,  rather,  a  failure  to  recognize  the  true  status  of  partner- 
ship property.  It  is  well  settled  everywhere  that,  as  to  partnership 
property,  partners  are  trustees  of  the  partnership,  as  to  each  other, 
and  the  advantages  derived  from  it  enure  to  the  benefit  of  the  firm. 
And  it  is  undoubtedly  true  that  a  firm  or  its  members  could,  by  injunc- 
tion, or  other  appropriate  remedy,  prevent  a  partner  from  diverting 
partnership  property  to  his  individual  use,  to  the  damage  of  the  firm, 
and  could  prevent  him  from  exercising  rights  of  possession  and  control 
which  would  be  destructive  of  the  purposes,  or  an  injury  to  the  busi- 
ness, of  the  firm.  It  is  also  well  settled,  as  a  general  rule,  that  an 
execution  cannot  reach  any  higher  interest  in  property  than  the  debtor 
himself  has  ;  and  yet  all  these  decisions  which  justify  an  officer  in  tak- 
ing exclusive  possession  of  firm  property  would  seem  to  ignore  these 
just  principles,  which  are  so  absolutely  necessary  to  the  successful 
operation  of  partnership  business.  It  would  seem  to  be  a  contradiction 
of  terms  and  principles  to  hold  that  the  officer  only  takes  and  the  pur- 
chaser only  gets  the  interest  which  a  partner  ma}*  have  in  partner- 
ship property  after  a  firm  has  been  wound  up  and  liquidated,  and  the 
partner's  ultimate  interest  thus  ascertained,  and  that  an  officer  may 
seize  partnership  property,  and  retain  exclusive  possession  of  it  until 
the  sale,  he  thus  being  enabled  to  do  what  the  individual  partner  would 
have  no  right  to  do.  And  it  also  seems  a  violation  of  fundamental 
rights,  and  the  taking  of  private  property  without  compensation,  to 
hold,  as  we  understand  was  held  in  the  case  of  Haskins  v.  Everett, 
supra,  that  where  a  partnership  has  endeavored  to  assert  its  rights  of 
possession  by  a  replevin  suit  as  against  an  officer  who  had  levied  on 
the  property  for  the  individual  debt  of  one  of  its  members,  it  would 
be  liable  for  damages  for  the  use  and  detention  of  its  own  property. 
It  would  seem  that  many  perplexing  questions  might  arise  out  of  this 
holding.  Suppose  different  executions  were  levied  on  different  articles 
or  lots  of  personal  property  belonging  to  a  partnership  for  the  individ- 


§  2.]  SEPARATE   CREDITORS   AT   LAW.  415 

ual  debt  of  a  member  of  tbe  firm,  and  on  an  accounting  and  liquidation 
it  was  ascertained  that  tbe  interest  of  tbe  debtor  partner  was  only 
sufficient  to  pa}' one  of  tbe  claims:  what  claim  would  have  priority? 
It  seems  to  be  clear  that,  as  long  as  property  bas  not  been  converted 
by  a  partner,  and  is  being  used,  or  subject  to  be  used,  for  tbe  legiti- 
mate purposes  of  tbe  partnership,  no  partner  bas  an}-  certain  or  ex- 
clusive or  special  interest  in  any  specific  partnership  property,  but  it  is 
the  property  of  tbe  entity,  tbe  firm.  How,  then,  can  a  creditor  or  an 
officer  take  any  specific  interest  in  any  particular  piece  of  property 
belonging  to  the  firm  under  such  an  execution,  lew,  and  sale?  Let  us 
suppose  that  a  creditor  having  a  debt  amounting  in  the  aggregate  to 
about  $500,  as  in  this  case,  levies  on  partnership  property  worth 
83,000,  and  another  creditor  having  a  debt  of  $1,500,  levies  at  a  sub- 
sequent time  on  another  article  of  partnership  property  worth  $1,500. 
On  an  accounting  it  is  ascertained  that  the  debtor  partner's  interest  in 
the  firm  at  the  time  of  the  levies  amounted  to  $1,500.  The  property 
worth  $3,000  was  sold,  and  bid  in  by  the  execution  creditor,  at  $500, 
in  satisfaction  of  the  first  debt  mentioned.  "What  will  be  the  result? 
At  the  time  of  the  first  lev}',  if  the  debtor  partner  is  to  be  charged  with 
one-half  tbe  property  levied  on,  as  taken  out  in  his  interest,  it  would 
absorb  all  his  interest  in  the  firm.  In  other  words,  does  the  levy  on 
specific  property  appropriate  any  specific  property,  or  onlv  the  debtor's 
interest  in  tbe  firm  ?  It  would  seem  that  b}*  far  the  more  sensible  and 
enlightened  method  of  reaching  a  partner's  interest  in  the  firm  would  be  by 
garnishment,  as  provided  b}'  statute  in  Georgia  ;  and,  as  said  in  Freera. 
Ex'ns,  it  would  seem  to  be  a  subject  deserving  of  legislative  attention. 

The  hardship  that  might  result  from  carrying  out  tbe  rule  laid  down 
in  this  State  in  the  cases  in  4  Sneed,  531,  and  12  Ileisk.  317,  could  be 
well  illustrated  by  this  case,  where  the  firm  had  a  contract  to  build 
an  extensive  system  of  waterworks.  A  part  of  tbe  material  necessary 
to  tbe  completion  of  the  contract  was  levied  on  and  sold  by  an  officer  for 
the  individual  debt  of  one  of  the  members,  and  it  is  stated  in  the  bill  that 
the  purchaser,  the  complainant  in  this  case,  notified  the  other  partner 
that  he  must  not  move  or  do  anything  with  this  property  until  his  interest 
was  paid  for.  It  seems  that  this  partner  paid  no  attention  to  this  direc- 
tion ;  and  it  would  clearly  appear  that,  if  the  complainant  bad  had  it  in 
his  power  to  enforce  the  directions  given  by  him,  it  would  not  only  have 
resulted  in  great  damage  and  ruin  to  the  firm's  business,  but  also  to 
tbe  other  partner,  who  was  in  no  way  to  blame  for  Wingfield's  indebt- 
edness. But,  whatever  trouble  may  arise  from  these  holdings,  we  do 
not  feel  at  liberty,  in  this  c©urt,  to  depart  from  what  we  understand  to 
be  well-settled  principles  in  this  State.  Nor  do  we  wish  to  be  under- 
stood as  criticising  the  holdings  of  our  Supreme  Court  upon  this  subject, 
further  than  to  call  attention  to  tbe  seeming  inconsistencies  that  arise 
therefrom,  and  which  are  common  to  all  the  earlier  cases  in  almost 
every  State  in  the  Union,  as  well  as  in  England.  But,  for  the  purposes 
of  this  case,  we  may  state  that  we  understand  the  decisions  in  this  State 


416  EIGHTS   AND    REMEDIES    OF   CREDITORS.  [CHAP.  V. 

from  which  we  have  above  quoted  to  settle  the  following  points : 
(1)  That  partnership  property  may  be  levied  on  by  the  creditor  for  the 
individual  debt  of  a  member  of  the  firm.  (2)  That  specific  property  ma}' 
be  levied  on,  and  it  is  not  necessary  that  the  execution  be  levied  upon 
all  the  property  of  the  firm.  (3)  That  the  officer  may,  and  that  in 
fact  it  is  his  duty  to,  take  actual  possession  of  the  properly  levied  on, 
and  to  retain  it  until  the  sale  is  made.  (4)  That  the  purchaser  only 
takes  the  interest  of  such  judgment  debtor  after  the  settlement  and 
adjustment  of  the  partnership  accounts,  as  is  the  language  used  in  the 
case  of  Haskins  v.  Everett,  supra,  or  a  mere  right  to  an  accounting, 
as  stated  in  another  case.  (5)  That,  as  stated  by  Judge  Freeman  in 
Bank  v.  Gray,  12  Lea,  459,  a  levy  is  necessary  in  order  to  fix  a  lien 
so  as  to  authorize  the  filing  of  a  bill. 

These  points  being  settled,  it  results,  in  our  opinion,  that  the  chan- 
cellor was  in  error  in  dismissing  the  complainant's  bill.  While  we 
think  that  Hazelhurst  had  the  right  to  use  and  properly,  whether  by 
himself,  or  by  the  new  firm  of  Hazelhurst  &  Co.,  used  the  iron  which 
had  been  levied  on,  in  carrying  out  the  contract  and  business  of  the 
old  firm,  still  it  is  the  logical  effect  of  the  decisions  which  we  have 
quoted  that  the  creditor,  Johnson,  having  the  right  to  have  the  prop- 
erty levied  on,  by  the  sale  and  purchase  took  whatever  interest  Wing- 
field  had  in  this  property  at  that  time,  which  could  only  be  ascertained 
by  an  accounting,  and  that  this  he  has  a  right  to  do.  If  it  shall  turn 
out  on  an  accounting  that  at  the  time  of  the  levy  the  liabilities  of  the 
firm,  as  claimed  in  the  answer  filed  with  the  demurrer,  exceeded  the 
assets,  and  that  the  firm  was  insolvent,  then  Johnson  will,  of  course, 
take  nothing  by  his  purchase  ;  and  it  is  also  clear  that  Johnson's  inter- 
est could  not  exceed  the  value  of  Wingfield's  share  in  all  the  partner- 
ship assets  after  all  partnership  debts  were  paid,  and  all  charges 
against  him  in  favor  of  Hazelhurst  were  settled.  The  logical  result 
of  our  cases  on  this  subject  seems  to  be  that  the  taking  by  the  officer 
has  practically  the  same  effect  as  the  withdrawal  and  conversion  of 
that  amount  of  property  by  the  debtor  member  of  the  firm,  subject  to 
being  compelled  to  return  such  an  amount  of  the  property  after  the 
exhaustion  of  other  partnership  property  as  might  be  necessary  to  pay 
all  partnership  debts,  and  to  secure  to  the  other  partner  his  just  share 
and  division  of  the  partnership  assets.  For  these  reasons  the  decree  of 
the  chancellor  will  be  reversed,  and  the  cause  remanded  to  be  further 
proceeded  with,  with  directions  to  refer  the  cause  to  the  master  to  take 
an  account,  and  to  ascertain  and  report  the  condition  of  the  old  firm  of 
Hazelhurst  &  Co.  at  the  time  of  the  levies  made,  as  shown  in  the  bill ; 
and  the  complainant  will  be  entitled  to  a  decree  for  the  value  of  Wing- 
field's  interest  in  the  property  levied  on,  if  any,  on  the  lines  indicated 
in  this  opinion.  The  decree  of  the  chancellor  is  reversed,  the  demurrer 
overruled,  and  the  cause  remanded,  as  stated,  and  the  defendants  will 
pay  the  costs  of  the  appeal.1 

1  Affirmed  orally  by  Supreme  Court,  October  16,  1897. 


§  2.]  SEPARATE    CREDITORS   AT   LAW.  417 

MICHALOVER   v.    MOSES. 
19  App.  Div.  (N.  Y.  Sup.  Ct.)  343.     1S97. 

Williams,  J.  The  action  was  for  conversion.  The  personal  prop- 
erty belonged  to  the  plaintiff  and  one  Rines  as  co-partners,  who  were 
equally  interested  therein. 

The  defendant,  a  marshal  of  the  city  of  New  York,  under  an  execu- 
tion against  Rines  individually,  took  and  sold  the  whole  property  and 
not  merely  Rines'  interest  therein.  This  constituted  a  conversion 
of  the  plaintiff's  interest  in  the  property.  While  the  defendant  might 
have  taken  and  sold  the  undivided  interest  of  Rines,  and  in  that  event 
might  have  delivered  the  whole  property  to  the  purchaser,  yet  the 
purchaser  would  have  acquired  title  to  only  the  interest  of  Rines, 
which  would  have  been  the  undivided  one-half,  subject  to  the  claims 
of  creditors  of  the  partnership,  and  he  would  have  been  obliged  to 
account  to  the  creditors  and  the  plaintiff  for  their  interest  therein, 
the  same  as  Rines  himself  would.  When,  however,  the  defendant 
took  and  sold  the  entire  property,  as  the  individual  properly  of  Rines, 
he  was  guilty  of  a  conversion  of  plaintiff's  interest  therein.  Walsh 
v.  Adams,  3  Den.  125;  Waddell  v.  Cook,  2  Hill,  47;  Zoller  v.  Grant, 
56  N.  Y.  Super.  Ct.  279;  Berry  v.  Kelly,  4  Robt.  106;  Bates  v.  James, 
3  Duer,  45;  Atkins  v.  Saxton,  77  N.  Y.  195. 

Sections  1413  and  1414  of  the  Code  of  Civil  Procedure  recognize 
this  rule  of  law,  and  provide  for  cases  wherein  levies  may  have  been 
made  upon  the  interest  of  partners  in  the  property  of  the  co-partner- 
ship by  virtue  of  executions  against  individual  co-partners.  Read 
v.  McLanahan,  47  N.  Y.  Super.  Ct.  275. 

There  can  be  no  doubt  as  to  the  plaintiff's  right  to  recover  in  this 
form  of  action.  The  theory  of  the  right  of  action  is  that  the  defend- 
ant, by  such  seizure  and  sale  of  the  whole  property,  is  guilty  of  such 
interference  with  the  plaintiff's  rights  as  constitutes  a  conversion  of 
his,  plaintiff's,  interest  in  the  property. 

The  judgment  appealed  from  should  be  affirmed,  with  costs. 

Van  Brunt,  P.  J.,  Patterson,  O'Brien,  and  Ingraham,  JJ.,  con- 
curred. 


HOLMES   v.    MILLER   et  al. 

41  S.  W.  (Ky.)  432.     1S97. 

Paynter,  J.  The  appellant,  Sue  Holmes,  obtained  a  judgment 
against  appellee,  II.  E.  Miller.  Execution  was  issued  on  it,  and 
levied  on  the  interest  of  H.  E.  Miller  in  a  sawmill,  lumber,  etc.,  as 
the  joint  property  of  H.  E.  Miller,  W.  H.  Miller,  and  Robert  Miller. 
The  execution  was  returned  with  proper  indorsement  on  it,  as  required 

27 


418  RIGHTS   AND   REMEDIES    OF   CREDITORS.  [CHAP.  V. 

by  section  G60,  Civ.  Code  Prac.  This  action  was  instituted  to  sub- 
ject H.  E.  Miller's  interest  in  the  property  upon  which  the  execution 
was  levied  to  the  payment  of  the  judgment. 

H.  E.  Miller,  W.  H.  Miller,  and  Robert  Miller  were  partners,  doing 
business  uuder  the  firm  name  of  H.  E.  Miller  &  Sons.  The  judgment 
was  against  H.  E.  Miller  for  au  individual  debt.  The  assets  of  the 
firm  were  first  bound  for  the  partnership  liabilities.  It  appears,  from 
the  evidence  in  this  case  and  the  report  of  the  master  commissioner, 
that  the  partnership  liabilities  exceeded  the  value  of  the  assets  of  the 
firm.  It  follows  that  H.  E.  Miller  had  no  interest  in  the  partnership 
assets  which  could  be  subjected  to  the  payment  of  the  Holmes  debt, 
and  the  court  properly  so  adjudged.  The  court  had  previously  entered 
a  judgment  to  the  effect  that  H.  E.  Miller's  interest  in  the  firm  should 
be  subjected  to  the  payment  of  the  judgment,  but  subsequently  set 
aside  the  judgment.  It  is  unnecessary  to  determine  whether  the  court 
had  or  did  not  have  the  authority  to  set  it  aside.  It  is  sufficient  to 
say  that  the  court  proceeded  to  ascertain  the  interest  of  H.  E.  Miller 
in  the  property,  the  value  of  the  firm's  assets,  and  its  liabilities. 
None  of  the  creditors  of  the  firm  were  parties  to  the  proceeding  at 
the  time  the  judgment  in  question  was  entered,  and  could  not  have 
been  prejudiced  by  it.  The  court  had  the  authority  to,  and  it  was 
its  duty  to,  proceed  to  ascertain  the  facts  which  demonstrated  that 
the  first  judgment  was  not  effective,  because  Miller  had  no  interest  in 
the  property  upon  which  the  execution  was  levied  that  could  be  sub- 
jected to  the  payment  of  the  judgment. 

The  judgment  is  affirmed. 


WILLIS   v.    HENDERSON. 
43  Ga.  325.     1871. 

Henderson's  ft.  fa.  against  P.  B.  Jones  was  levied  on  certain  lots 
of  land  as  the  property  of  P.  B.  Jones.  Jones  filed  an  affidavit  that 
the  lands  were  not  his,  individually,  but  belonged  to  him  and  John  F. 
Jones,  as  partners  in  farming,  and  also  filed  a  claim  to  the  land  for 
the  partnership.  Thereupon  the  sheriff  suspended  proceedings,  and 
returned  the  affidavit  of  illegality  and  claim  to  court.  Henderson 
ruled  the  sheriff  for  the  money  due  on  his/,  fa.  The  sheriff  responded 
the  facts  aforesaid  as  his  reason  for  not  having  the  money.  Hender- 
son's attorney  demurred  to  said  answer,  and  the  court  made  the  rule 
against  the  sheriff  absolute.     That  is  assigned  as  error. 

Richard  Sims,  for  plaintiff  in  error. 

H.  Fielder,  for  defendant. 

McCay,  J.  Without  doubt,  by  the  common  law,  it  was  competent 
to  levy  upon  and  sell  the  interest  of  a  partner  in  any  property  belong- 


s 


2.]  SEPARATE    CREDITORS   AT   LAW.  419 


ing  to  the  partnership.  Shaw  v.  McDonald,  21  Ga.  395.  The  pur- 
chaser got  the  interest  of  the  partner;  he  did  not  get  an  undivided 
title  equal  to  the  partner's  share  in  the  concern,  according  to  the 
agreement,  but  the  interest  of  the  partner  after  a  settlement  of  the 
concern  affairs.  2-1  Ga.  625.  Evidently  this  was  a  very  clumsy  and 
often  a  very  unjust  mode  of  enforcing  the  claims  of  a  creditor  against 
one  of  the  firm.  The  purchaser  did  not  know  what  he  was  buying, 
since  his  interest  depended  altogether  upon  the  result  of  a  settlement 
of  the  firm  affairs. 

Our  Code,  section  1908,  prohibits  the  sale  of  effects  so  situated, 
and  provides  that  the  interest  of  a  partner  in  the  partnership  assets 
may  be  reached  by  the  process  of  garnishment.  And  this,  we  think. 
is  far  better  for  both  parties.  The  proceeding  is  in  the  usual  way, 
by  affidavit,  bond,  and  summons,  as  in  other  cases,  with,  perhaps, 
the  qualification  that  it  would  be  incompetent  to  get  a  judgment 
against  the  firm  by  a  service  of  only  the  party  whose  interest  is 
sought.  A  full  investigation  may  be  had,  and  if  the  defendant  in 
the  judgment  has  any  interest  after  settlement  of  the  affairs,  a  judg- 
ment will  go  against  the  firm. 

2.  We  see  no  reason  why  the  defendant  may  not  stop  the  execu- 
tion in  the  way  adopted.  If  the  facts  stated  be  true,  the  execution 
is  proceeding  illegally,  since  it  is  levying  on  an  interest  of  the  defend- 
ant not  subject  to  levy  and  sale.  If  they  be  untrue,  and  the  property 
is  the  property  of  the  defendant,  a  finding  of  the  fact  by  the  jury  will 
settle  the  matter.  We  do  not  see,  either,  why  the  claim  is  not  strictly 
proper.     The  claimant  is  not  the  defendant,  but  the  partnership. 

Judgment  reversed. 


BROWN,   JANSON,    &   CO.   v.   HUTCHINSON   &   CO.  et  al. 

[1895]    2  Q.  B.  126. 

TnE  facts  in  this  case  are  as  follows:  The  plaintiffs  brought  an 
action  against  J.  A.  Hutchinson  and  the  firm  of  Hutchinson  &  Co., 
of  which  he  was  a  member,  upon  a  bill  of  exchange  for  £3,000,  drawn 
by  J.  A.  Hutchinson  upon  and  accepted  by  the  firm,  and  they  obtained 
judgment  against  J.  A.  Hutchinson  under  Order  XIV.  for  £3,034  17s., 
leave  being  granted  to  the  firm  to  defend  the  action,  on  the  ground 
that  J.  A.  Hutchinson  had  no  authority  to  accept  the  bill  for  the 
firm. 

The  plaintiffs  then  applied  by  summons  under  §  23  of  the  Partner- 
ship Act,  1890,  for  an  order  charging  the  interest  of  J.  A.  Hutchinson 
in  the  partnership  business  with  the  amount  of  the  judgment  debt,  and 
for  the  appointment  of  a  receiver  of  his  said  partnership  interest. 
This  order  was  made  and  wa*s  affirmed  by  the  Court  of  Appeal.     Sub 


420  RIGHTS   AND   REMEDIES   OF   CREDITORS.  [CHAP.  V. 

sequent!  y  the  learned  judge  at  chambers  ordered  the  defendants,  A. 
Hutchinson  &  Co.,  to  deliver  to  the  plaintiffs  an  account  of  the  share 
of  profits  of  the  defendant  J.  A.  Hutchinson  in  the  partnership  of  the 
defendant  A.  Hutchinson  &  Co.     This  is  the  order  appealed  against.1 

McCall,  Q.  C,  and  H.  T.  Atkinson,  for  the  defendants. 

Witt,  Q.  C,  and  Bartley  Denmss,  for  the  plaintiffs. 

Rigby,  L.  J.     This  case  depends  upon  §  23,  sub-sec.  2,  of  the  Part- 
nership Act,  1890.     The  latter  part  of  that  sub-section  provides  that 
the  court  or  a  judge  may  "  direct  all  accounts  and  inquiries,  and  give 
all  other  orders  and  directions   which  might  have  been  directed  or 
given  if  the  charge  had  been  made  in  favor  of  the  judgment  creditor 
by  the  partner,  or  which  the  circumstances  of  the  case  may  require." 
Reading  the  sub-section  with  §  31,  sub-sec.  1,  which  provides  that  an 
assignment  by  a  partner  of  his  share  in  the  partnership,  either  abso- 
lute, or  by  way  of  mortgage  or  redeemable  charge,  does  not,  as  against 
the  other  partners,  entitle  the  assignee,  during  the  continuance  of  the 
partnership,  to  require  any  account  of  the  partnership  transactions, 
I  think  it  plain  that  the  intention  of  the  legislature  was  that,  under 
ordinary  circumstances,   in  dealing  with  a  case  under  sub-sec.  2  of 
§  23,  the  analogy  of  an  assignment  by  a  partner  of  his  share  should  be 
adhered  to.     In  order  to  get  rid  of  such  inconveniences  as  arose  under 
the  old  law  in  cases  where  the  partnership  property  was   seized   to 
satisfy  the  separate  judgment  debt  of  one  of  the  partners,  it  is  pro- 
vided by  §  33,  sub-sec.  2,  that  a  partnership  may,  at  the  option  of  the 
other  partners,  be  dissolved  if  any  partner  suffers  his  share  of  the 
partnership  property   to  be  charged  under  the  act  for  his   separate 
debt.     That  provision  is,  of  course,  only  applicable  to  English  part- 
nerships ;  and  whether  there  is  in  this  case  an  English  partnership  as 
well  as  the  French  partnership,  or,  if  not,  what  the  French  law  on 
the  subject  under  such  circumstances  may  be,  we  are  not  in  a  position 
to  say.     It  seems  to  me  that  the  words  at  the  end  of  sub-sec.  2  must 
be  taken  as  meaning  that  prima  facie  the  judgment  creditor  who  has 
obtained  a  charging  order  under  that  sub-section   shall    have   such 
remedies  as  a  person  would  have  in  whose  favor  a  charge  had  been 
made  by  a  partner  upon  his  share  in  the  partnership ;  and  that  by  so 
reading  them  we  are  not  depriving  such  a  judgment  creditor  of  any 
right  which  he  would  have  had  under  the  law  as  it  previously  existed. 
Treating  that  as  being  the  general  rule  laid  down  by  the  sub-section, 
what  then  is  the  meaning  of  the  concluding  words  of  the  sub-section, 
"or  which  the  circumstances  of  the  case  may  require?"     I  do  not 
look  upon  those  words  as  having  no  effective  meaning.     I  think  that 
they  recognize  that  the  analogy  of  an  assignment  of  a  share  in  the 
partnership  by  a  partner  might  not  in  all  cases  afford  the  rule  which 
is  to  be  acted  upon  under  the  new  law.     But  I  cannot  think  that  the 
previous  words  referring  to  the  remedies  given  to  an  assignee  by  way 
of  charge  were  inserted  without  reason,  as  would  be  the  case  accord* 

1  The  statement  of  facts  is  taken  from  the  opinion  of  Lopks,  L.  J. 


§  2.]  SEPARATE   CEEDITOES   AT  LAW.  421 

ing  to  the  wide  construction  of  the  sub-section  contended  for  by  the 
plaintiffs.  I  think  they  were  inserted  as  an  instruction  with  regard 
to  the  rule  to  be  acted  on  in  ordinary  eases,  and  that  the  concluding 
words  were  added  to  give,  under  special  circumstances,  a  wider  juris- 
diction to  direct  accounts  than  would  have  existed  in  the  case  of  an 
assignee;  and  what  the  special  circumstances  so  contemplated  may 
be,  it  seems  to  me  unnecessary  for  the  purposes  of  the  present  case 
to  endeavor  to  define,  for,  when  I  look  at  the  facts,  I  cannot  find  any 
special  circumstances  whatever  to  take  the  case  out  of  the  ordinary 
rule  indicated  by  the  sub-section.  [  do  not  think  that  in  a  case  like 
the  present  the  legislature  ever  intended  that  an  account  should  be 
directed  as  against  the  other  partners  during  the  continuance  of  the 
partnership.  I  therefore  agree  with  my  Brother  Lopes  that  this  appeal 
should  be  allowed.  Appeal  allowed. 


In  re  ABRAHAM   SANDUSKY. 

17  Xat.  Bankruptcy  Register,  452.     1878. 

The  members  of  the  firm  of  H.  Sanford  &  Co.  were  adjudicated 
bankrupts  early  in  1878.  Prior  to  the  adjudication,  judgment  cred- 
itors had  levied  on  certain  separate  property  of  A.  Sandusky,  a  mem- 
ber of  the  bankrupt  firm.  An  injunction  was  obtained,  upon  the 
petition  of  the  assignee  in  bankruptcy,  of  A.  Sandusky  and  of  his 
separate  creditors,  staying  the  enforcement  of  the  judgment  creditors' 
lien  upon  A.  Sandusky's  separate  property.1 

L.  H.  Bradley,  for  the  petitioners. 

.V.  M.  Broadwell,  for  the  respondents. 

N.  W.  Branson,  Register  in  Bankruptcy.  The  petitioners  seek 
to  maintain  their  injunction  upon  the  familiar  rule  obtaining  in  equity 
and  in  bankruptcy,  that  the  separate  estate  of  an  individual  partner 
cannot  be  applied  towards  payment  of  the  partnership  debts  until 
after  the  payment  in  full  of  his  separate  debts.  The  respondents, 
on  the  other  hand,  contend  that  the  above  rule  does  not  obtain  in 
this  case,  for  the  reason  that  they  had  obtained  a  specific  lien  on  the 
property  in  question,  by  virtue  of  the  levy  of  an  execution  thereon. 

I  have  hunted  up  and  examined  the  authorities  on  the  question  thus 
presented,  with  such  care  as  my  time  would  permit.  The  only  case 
in  a  court  of  the  United  States  which  I  have  found  in  point  is  the 
case  In  re  Lewis,  8  N.  B.  R.  546,  decided  by  Judge  Rives,  of  the 
U.  S.  District  Court  for  Western  District  of  Virginia,  and  affirmed 
on  appeal  by  Judge  Bond,  of  the  Circuit  Court.  In  that  case  the 
court  holds  that  although,  in  the  distribution  of  the  general  assets  of 
a  bankrupt,  the  partnership  assets  are  to  be  first  applied  to  the  part- 
nership debts,  and  the  individual  assets  of  any  separate  partner  first 

1  The  statement  of  facts  has  been  abridged. 


422  EIGHTS    AND    REMEDIES    OF   CREDITORS.  [CHAP.  V. 

applied  to  his  individual  debts,  according  to  the  terms  of  the  Bank- 
rupt Law,  yet,  when  a  judgment  has  been  obtained  by  a  partnership 
creditor  against  the  members  of  a  concern,  such  judgment  operates 
as  a  several  lien  against  the  real  estate  of  each  partner;  and  if  prior, 
in  point  of  time,  to  a  judgment  obtained  against  an  individual  part- 
ner by  an  individual  creditor  of  such  partner,  is  to  be  preferred  to 
such  subsequent  judgment;  but  the  court  is  further  of  the  opinion 
that,  when  such  partnership  creditor  can  get  satisfaction  of  any  part 
of  said  judgment  out  of  the  partnership  assets,  the  pro  rata  distribu- 
tion to  which  such  partnership  creditor  is  entitled  out  of  the  partner- 
ship fund  shall  first  be  applied  as  a  credit  on  said  judgment  against 
the  separate  partner,  in  relief  of  the  fund  of  such  separate  partner, 
for  the  benefit  of  the  separate  creditor. 

In  the  case  of  Meech  v.  Allen,  17  N.  Y.  300,  the  New  York  Court 
of  Appeals  say  this:  It  is  a  settled  rule  of  equity  that,  as  between 
the  joint  and  separate  creditors  of  partners,  the  partnership  property 
is  to  be  first  applied  to  the  payment  of  the  partnership  debts,  and  the 
separate  property  of  the  individual  partners  to  the  payment  of  their 
separate  debts,  and  that  neither  class  of  creditors  can  claim  anything 
from  the  fund  which  belongs  primarily  to  the  opposite  class  until  all 
the  claims  of  the  latter  are  satisfied.     This,  however,  is  a  rule  which 
prevails  in  a  court  of  equity  in  the  distribution  of  equitable  assets 
only.     Those  courts  have  never  assumed  to  exercise  the  power  of  set- 
ting aside,  or  in  any  way  interfering  with  an  absolute  right  of  priority 
obtained   at  law.     In   regard  to  all   such  cases,  the  rule  is  equitas 
sequitar  legem.     1    Story,  Eq.  Jur.  §   553.     In  Wilder  v.   Keeler,   3 
Paige,     167,     Chancellor    Walworth    says:    "  Equitable    rules    are 
adopted  by  this  court  in  the  administration  of  legal  assets,  except 
so  far  as  the  law  has  given  an  absolute  preference  to  one  class  of 
creditors  over  another. "     So  in  the  case  of  Averill  v.  Loucks,  6  Barb. 
470,  Paige,  J.,   says:  "Courts  of  equity,   in  the  administration  of 
assets,  follow  the  rules  of  law  in  regard  to  legal  assets,  and  recognize 
and  enforce  all  antecedent  liens,  claims,  and  charges  existing  upon 
the  property,  according  to  their  priorities."     This  is  also  conceded 
in  the  case  of  McCullough  v.  Dashiell,  1  Har.  &  Gill,  96,  where  the 
whole  doctrine   of  distribution   in   equity  of  the  joint  and  separate 
property    of    partners    is   very    elaborately   examined.     Archer,    J., 
says:  "At  law  the  joint  creditors  may  pursue  both  the  joint  and  sep- 
arate estate  to  the  extent  of  each,  for  the  satisfaction  of  their  joint 
demands,  which  are  at  law  considered  joint  and  several  without  the 
possibility  of  the  interposition  of  any  restraining  power  of  a  court 
of  equity."     But  especially  must  it  be  beyond   the  power  of  such 
courts  to  interfere  where  an  absolute  right  of  legal  priority  is  given 
by  force  of  a  positive  statute  as  in  case  of  a  judgment.     Chancellor 
Walworth,   in  Mower  v.  Kip,  6  Paige,  88,  says:  "The  rule  of  this 
court  is  to  give  effect  to  the  lien  of  a  judgment  upon  a  legal  title  so 
far  as  it  can  be  enforced  by  execution  at  law." 


§  2.]  SEPARATE   CREDITORS   AT   LAW.  423 

I  have  thus  quoted  at  large  from  the  opinion  of  the  New  York  Court 
of  Appeals,  as  it  is  a  court  of  high  authority.  To  the  same  effect  is 
Straus  v.  Kerngood,  21  Gratt.  584.  In  New  Jersey  it  is  held  that 
the  equitable  principle  above  referred  to  cannot  apply  to  creditors 
who  have  secured  their  debts  by  judgment  and  execution  liens.  1 
Stock.  X.  J.  836.  The  Supreme  Court  of  Georgia  hold  that,  in 
cases  of  co-partnership,  the  equity  in  favor  of  separate  creditors  will 
not  be  enforced  to  control  or  take  away  a  i  ight  acquired  by  legal  execu- 
tion on  the  part  of  joint  creditors  against  the  separate  estate.  Baker 
y.  Wimple,  L9  Ga.  87;  Cleghorn  v.  Ins.  Bank,  '.»  Ga.  319.  In  the 
latter  case,  Lumpkin,  J.,  delivering  the  opinion  of  the  court,  says: 
"The  equity  in  favor  of  separate  creditors  will  never  be  enforced  to 
control  or  take  away  a  right  acquired  by  legal  execution  on  the  part 
of  joint  creditors  against  the  separate  estate." 

In  Wisham  v.  Lippincott,  1  Stock.  3.33,  Chancellor  AVilliamson 
says:  "A  court  of  chancery  may  undoubtedly,  where  the  equities 
between  the  parties  are  to  be  adjusted,  and  when  the  assets  are  before 
the  court,  and  the  court  is  called  upon  to  marshal  them,  apply  such 
a  rule.  I  have  no  hesitation  in  saying  that  when  a  joint  creditor  of  a 
firm  has  a  judgment  and  execution  levied  upon  the  separate  effects  of 
one  of  the  partners,  this  court  ought  not,  in  mere  compliance  with 
any  such  rule  as  that  the  separate  creditors  of  each  partner  are 
entitled  to  be  first  paid  out  of  the  separate  effects  of  their  debtors, 
before  the  partnership  creditors  can  claim  anything,  to  interfere  with 
such  execution,  either  on  application  of  one  of  the  partners  or  any 
creditor  of  the  firm,  or  separate  creditor  of  any  of  its  members." 

Some  cases  in  New  Hampshire  would  seem  to  announce  the  con- 
trary principle,  as  Crockett  v.  Crain,  33  N.  H.  542 ;  Jarvis  v.  Brooks, 
23  N.  H.  136,  and  Holton  v.  Holton,  40  N.  H.  77.  But  these  cases 
must  be  considered  in  connection  with  a  late  decision  of  the  same 
court,  Bowker  v.  Smith,  48  N.  H.  Ill;  which  appears  to  modify  the 
doctrine  announced  in  the  earlier  cases.  In  the  latter  case,  Perley,  C.  J., 
in  giving  the  opinion  of  the  court,  and  speaking  of  the  equitable 
doctrine  relied  on  by  the  petitioner  in  this  case,  says:  "  The  grounds 
on  which  the  doctrine  was  admitted  here  afforded  no  reason  for  sup- 
posing that  this  right  remains  to  be  asserted  after  the  property,  once 
taken  for  the  satisfaction  of  debts,  has  been  finally  appropriated 
under  legal  process  by  levy  on  the  property  of  the  individual  part- 
ner." The  Supreme  Court  of  South  Carolina  holds  that  the  private 
creditors  of  a  partner  are  entitled  to  pay  out  of  his  separate  estate, 
in  preference  to  partnership  creditors,  though  the  latter  have  recovered 
judgment  against  him  as  surviving  partner.  Woddrup  /;.  Ward,  3 
Des.  203. 

Upon  consideration  of  all  the  authorities  upon  this  point,  which  I 
have  been  able  to  find,  it  appears  to  me  that  there  is  a  very  decided 
preponderance  to  the  effect  that  where  an  execution  lien  has  been 
obtained,  in  good  faith,  before  bankruptcy,  on  the  individual  prop- 


424  EIGHTS   AND   REMEDIES    OF   CREDITORS.  [CHAP.  V. 

erty  of  a  member  of  a  partnership  firm,  under  a  judgment  against  the 
firm,  that  that  statutory  lien  will  not  yield  to  the  equities  of  the  sep- 
arate creditors  of  that  partner.  And  this  is  entirely  in  harmony  with 
the  rule  which  obtains  in  courts  of  bankruptcy,  that  liens  generally, 
including  execution  liens,  which  have  been  acquired  in  good  faith 
before  the  commencement  of  proceedings  in  bankruptcy,  are  preserved 
and  enforced. 

I  am  therefore  of  opinion,  upon  the  papers  submitted  to  me  in  this 
matter,  that  the  injunction  should  be  dissolved.  All  of  which  is 
respectfully  submitted. 

Treat,  J.     Decision  of  register  affirmed. 


§  3.     Creditors  in  Equity. 

RODGERS   v.   MERANDA   et  al. 
7  Ohio  St.  179.     1857. 

The  original  proceeding  was  a  petition  for  an  order  of  distribution  of 
the  separate  or  individual  assets  of  an  insolvent  debtor,  as  between 
separate  and  partnership  creditors. 

It  appears  from  the  record,  that  about  the  13th  of  June,  1854,  Peter 
Murray,  an  insolvent  debtor,  made  an  assignment  of  all  his  estate,  real 
and  personal,  to  the  plaintiff,  in  trust  for  the  payment  of  his  individual 
creditors,  in  proportion  to  the  amount  of  their  respective  demands. 
Though  possessed  of  a  large  and  valuable  estate,  it  had  been  found 
insufficient  to  pay  his  separate  debts  and  liabilities,  in  full.  At  the  date 
of  his  failure  and  assignment,  he  was  a  partner  with  John  W.  Dever, 
in  a  mercantile  firm,  under  the  name  and  style  of  Dever  &  Murray  ; 
which  firm  had  also  become  insolvent,  and  likewise  Dever ;  and  the  firm 
had  made  an  assignment  of  the  partnership  property  and  assets,  about 
the  same  time  to  John  Meranda,  one  of  the  defendants,  in  trust  for  the 
payment  of  the  joint  debts  or  liabilities  of  the  firm. 

In  this  condition  of  affairs,  the  partnership  creditors,  although  they 
have  filed  their  claims  with  the  assignee  of  the  firm  for  their  distributive 
shares  out  of  the  partnership  property,  claim  the  right  to  be  admitted  to 
a  participation  in  the  dividends  of  the  separate  estate  of  Murray,  pari 
passu  with  his  individual  creditors  ;  while  the  latter  deny  the  right,  and 
insist  that  his  separate  estate  shall  be  applied  to  the  satisfaction  of  his 
individual  debts  in  preference  to  his  partnership  debts. 

It  appears  further,  that  Murray,  besides  advancing  his  part  of  the 
capital  of  the  firm,  also  loaned  money  to  the  firm  to  a  large  amount,  for 
which  he  held  the  obligations  of  the  firm,  which  obligations,  by  the 
assignment  of  Murray,  came  into  the  hands  of  the  plaintiff,  who  has 
presented  the  same  to  the  assignee  of  the  firm,  and  claims  to  have  the 


§  3.]  CREDITORS   IN   EQUITY.  425 

same  paid  out  of  the  assets  of  the  firm,  pari  passu  with  the  other  part- 
nership debts.  The  other  creditors  resist  this,  and  plaintiff  asks  an 
order  of  distribution  to  that  effect  out  of  partnership  assets. 

Defendants  demurred  to  the  petition.  The  court  below  sustained  the 
demurrer,  and  gave  judgment  in  favor  of  the  defendants.  And  this 
petition  in  error  is  filed  to  review  and  reverse  that  judgment. 

W.  White,  and  8.  cb  R.  Mason,  for  plaintiff. 

Anthony  &  Goode,  for  defendant  Meranda. 

Conocer  &  Craighead,  for  defendants  Tracy,  Irwin,  &  Co. 

Bartlev,  C.  J.     Two  questions  are  presented  for  determination  in 
this  case.     The  first  is,  whether  in  the  distribution  of  the  assets  of 
insolvent  partners,  where  there  are  both  individual  and  partnership 
assets,  the  individual  creditors  of  a  partner  are  entitled  to  be  first  paid 
out  of  the  individual  effects  of  their  debtor,  before  the  partnership 
creditors  are  entitled  to  any  distribution  therefrom.     It  is  well  settled 
that,  in  the  distribution  of  the  assets  of  insolvent  partners,  the  partner- 
ship creditors  are  entitled  to  a  priority  in  the  partnership  effects  ;  so 
that  the  partnership  debts  must  be  settled  before  any  division  of  the 
partnership  funds  can  be  made  among  the  individual  creditors  of  the 
several  partners.    This  is  incident  to  the  nature  of  partnership  property. 
It  is  the  right  of  a  partner  to  have  the  partnership  property  applied  to 
the  purposes  of  the  firm  ;  and  the  separate  interest  of  each  partner  in 
the  partnership  property  is  his  share  of  the  surplus  after  the  payment 
of  the  partnership  debts.     And  this  rule,  which  gives  the  partnership 
creditors  a  preference  in  the  partnership  effects,  would  seem  to  produce, 
in  equity,  a  corresponding  and  correlative  rule,  giving  a  preference  to 
the  individual  creditors  of  a  partner  in  his  separate  property  ;  so  that 
partnership  creditors  can,  in  equity,  only  look  to  the  surplus  of  the 
separate  property  of  a  partner,  after  the  payment  of  his  individual 
debts  ;  and,  on  the  other  hand,  the  individual  creditors  of  a  partner  can,  in 
like  manner,  only  claim  distribution  from  the  debtor's  interest  in  the  sur- 
plus of  the  joint  fund,  after  the  satisfaction  of  the  partnership  creditors. 
The  correctness  of  this  rule,  however,  has  been  much  controverted  ; 
and  there  has  not  been  always  a  perfect  concurrence  in  the  reasons 
assigned  for  it  by  those  courts  which  have  adhered  to  it.     By  some,  it 
has  been  said  to  be  an  arbitrary  rule,  established  from  considerations  of 
convenience  ;  by  others,  that  it  rests  on  the  basis  that  a  primary  liability 
attaches  to  the  fund  on  which  the  credit  was  given  —  that  in  contracts 
with  a  partnership,  credit  is  given  on  the  supposed  responsibility  of  the 
firm  ;  while  in  contracts  with  a  partner  as  an  individual,  reliance  is  sup- 
posed to  be  placed  on  his  separate  responsibility.    3  Kent,  Com.  65.    And 
again,  others  have  assigned  as  a  reason  for  the  rule  that  the  joint  estate 
is  supposed  to  be  benefited  to  the  extent  of  every  credit  which  is  given  to 
the  firm,  and  that  the  separate  estate  is,  in  like  manner,  presumed  to 
be  enlarged  by  the  debts  contracted  by  the  individual  partner  ;  and  that 
there  is  consequently  a  clear  equity  in  confining  the  creditors,  as  to  pre- 
ferences, to  each  estate  respectively,  which  has  been  thus  benefited  by 


426  EIGHTS   AND   EEMEDIES    OF   CEEDITOES.  [CHAP.  V. 

their  transactions.  1  Harr.  &  Gill  Rep.  96.  But  these  reasons  are  not 
entirely  satisfactory.  So  important  a  rule  must  have  a  better  founda- 
tion to  stand  upon  than  mere  considerations  of  convenience  ;  and  prac- 
tically it  is  undeniable  that  those  who  give  credit  to  a  partnership  look 
to  the  individual  responsibility  of  the  partners,  as  well  as  that  of  the 
firm ;  and  also,  those  who  contract  with  a  partner  in  his  separate 
capacity,  place  reliance  on  his  various  resources  or  means,  whether 
individual  or  joint.  And  inasmuch  as  individual  debts  are  often  con- 
tracted to  raise  means  which  are  put  into  the  business  of  a  partnership, 
and  also  partnership  effects  often  withdrawn  from  the  firm  and  appro- 
priated to  the  separate  use  of  the  partners,  it  cannot  be  practically  true 
that  the  separate  estate  has  been  benefited  to  the  extent  of  every  credit 
given  to  each  individual  partner,  nor  that  the  joint  estate  has  retained 
from  the  separate  estate  of  each  partner  the  benefit  of  every  credit 
given  to  the  firm.  Unsatisfactory  reasons  may  weaken  confidence  in  a 
rule  which  is  well  founded. 

What  then  is  the  true  foundation  of  the  rule  which  gives  the  individ- 
ual creditor  a  preference  over  the  partnership  creditor,  in  the  distribu- 
tion of  the  separate  estate  of  a  partner?     To  say  that  it  is  a  rule  of 
general  equity,  as  has  been  sometimes  said,  is  not  a  satisfactory  solution 
of  the  difficulty  ;  for  the  very  question  is,  whether  it  be  a  rule  of  equity 
or  not.     In  the  distribution    of  the   assets  of  insolvents,   equality  is 
equity  ;  and  to  say  that  the  rule  which  gives  the  individual  creditor  a 
preference  over  the  partnership  creditor  in  the   separate  estate  of  a 
partner  is  a  rule  of  equality,  does  not  still  rid  the  subject  of  difficulty. 
For  leaving  the  rule  to  stand,  which  gives  the  preference  to  the  joint 
creditors  in  the  partnership  property,  and  perfect  equality  between  the 
joint  and  individual  creditors,  is,  perhaps,  rarely  attainable.     That  it 
is,  however,  more  equal  and  just,  as  a  general  rule,  than  any  other 
which  can  be  devised,  consistently  with  the  preference  to  the  partnership 
creditors  in  the  joint  estate,  cannot  be  successfully  controverted.     It 
originated  as  a  consequence  of  the  rule  of  priority  of  partnership  cred- 
itors in  the  joint  estate,  and  for  the  purpose  of  justice,  became  necessary 
as  a  correlative  rule.     With  what  semblance  of  equity  could  one  class 
of  creditors,  in  preference  to  the   rest,  be  exclusively  entitled  to  the 
partnership  fund,  and,  concurrently  with  the  rest,  entitled  to  the  separate 
estate  of  each  partner?     The  joint  creditors  are  no  more  meritorious 
than  the  separate  creditors  ;  and  it  frequently  happens,  that  the  separate 
debts  are  contracted  to  raise  means  to  carry  on  the  partnership  busi- 
ness.    Independent  of  this  rule,  the  joint  creditors  have,  as  a  general 
tiling,  a  great  advantage  over  the  separate  creditors.     Besides  being 
exclusively  entitled  to  the  partnership  fund,  they  take  their  distributive 
share  in  the  surplus  of  the  separate  estate  of  each  of  the  several  part- 
ners, after  the  payment  of  the  separate  creditors  of  each.     It  is  a  rule 
of  equity,  that  where  one  creditor  is  in  a  situation  to  have  two  or  more 
distinct"  securities  or  funds  to  rely  on,  the   court  will  not  allow  him, 
neo-lectino-  his  other  funds,  to  attach  himself  to  one  of  the  funds  to  the 


CREDITORS    IN    EQUITY.  427 


prejudice  of  those  who  have  a  claim  upon  that,  aud  no  other  to  depend 
on.  And  besides  the  advantage  which  the  joint  creditors  have,  arising 
from  the  fact  that  the  partnership  fund  is  usually  much  the  largest,  as 
men  in  trade,  in  a  great  majority  of  cases,  embark  their  all,  or  the  chief 
part  of  their  property,  in  it ;  and  besides  their  distributive  rights  in  the 
surplus  of  the  separate  estate  of  the  other  partners,  the  joint  creditors 
have  a  degree  of  security  for  their  debts  and  facilities  for  recovering 
them,  which  the  separate  creditors  have  not ;  they  can  sell  both  the  joint 
and  the  separate  estate  on  an  execution,  while  the  separate  creditor  can 
sell  only  the  separate  property  and  the  interest  in  the  joint  effects  that 
may  remain  to  the  partners,  after  the  accounts  of  the  debts  and  etfects 
of  the  firm  are  taken,  as  between  the  firm  and  its  creditors,  and  also  as 
between  the  partners  themselves.  "With  all  these  advantages  in  favor 
of  partnership  creditors,  it  would  be  grossly  inequitable  to  allow  them 
the  exclusive  benefit  of  the  joint  fund,  and  then  a  concurrent  right  with 
individual  creditors  to  an  equal  distribution  in  the  separate  estate  of 
each  partner.  What  equality  and  justice  is  there  in  allowing  partner- 
ship creditors,  who  have  been  paid  eighty  per  cent  on  their  debts,  out 
of  the  joint  fund,  to  come  in  pari  passu  with  the  individual  creditors  of 
one  of  the  partners,  whose  separate  property  will  not  pay  twenty  per 
cent  to  his  separate  creditors?  How  could  that  be  said  to  be  an  equal 
distribution  of  the  assets  of  insolvents  among  their  creditors?  It  is 
true  that  an  occasional  case  may  arise  where  the  joint  effects  are  pro- 
portionably  less  than  the  separate  assets  of  an  insolvent  partner.  But, 
as  a  general  thing,  a  very  decided  advantage  is  given  to  the  partnership 
creditors,  notwithstanding  this  preference  of  the  individual  creditors  in 
the  separate  property.  And  that  advantage,  arising  out  of  the  nature 
of  a  partnership  contract,  is  unavoidable.  Some  general  rule  is  neces- 
sary ;  and  that  must  rest  on  the  basis  of  the  unalterable  preference  of 
the  partnership  creditors  in  the  joint  effects,  and  their  further  right  to 
some  claim  in  the  separate  property  of  each  of  the  several  partners. 
The  preference,  therefore,  of  the  individual  creditors  of  a  partner  in  the 
distribution  of  his  separate  estate,  results,  as  a  principle  of  equity,  from 
the  preference  of  partnership  creditors  in  the  partnership  funds,  and 
their  advantages  in  having  different  funds  to  resort  to,  while  the  indi- 
vidual creditors  have  but  the  one. 

It  has  been  argued  that  partnership  contracts  are  several  as  well  as 
joint,  and  consequently  have  an  equal  legal  right  with  separate  creditors 
upon  the  individual  property  of  a  partner.  But  the  right  of  partnership 
creditors  against  the  separate  property  of  individual  partners  in  pro- 
ceedings at  law,  is  not  in  con  trovers)".  The  question  here  relates  to 
the  relative  equitable  riffhts-of  two  classes  of  creditors  in  the  distribu- 
tion of  the  estates  of  insolvents.  Much  of  the  confusion  upon  this 
subject  has  probably  arisen  from  confounding  the  abstract  rights  ol 
creditors  in  proceedings  at  law,  with  their  relative  rights  to  an  equitable 
adjustment  in  marshalling  the  assets  of  insolvents  in  chancery. 

The  rule  here  adopted  appears  to  have  been  followed  in  England  for 


428  EIGHTS   AND   REMEDIES    OF   CREDITORS.  [CHAP.  V. 

near  a  century  and  a  half.  "We  find  it  distinctly  recognized  in  the  case 
of  Ex  parte  Crowder,  2  Vernon,  706,  decided  in  1715.  And  in  Ex 
parte  Cook,  2  Peere  Williams,  500,  Lord  Chancellor  King  declared  it 
settled  as  a  rule  of  convenience  in  bankruptcy  that  joint  creditors 
should  be  first  paid  out  of  the  partnership  estate,  and  the  separate 
creditors  out  of  the  separate  estate  of  each  partner  ;  and  if  there  be  a 
surplus  of  the  joint  estate  after  paying  the  joint  creditors,  the  share  of 
each  partner  should  be  distributed  to  his  separate  creditors  ;  and  if,  on 
the  other  hand,  there  should  be  a  surplus  of  the  separate  estate  of  a 
partner  after  the  satisfaction  of  his  individual  creditors,  it  should  be 
applied  to  any  deficiency  of  the  joint  funds  in  the  satisfaction  of  the 
partnership  debts.  Lord  Hardwicke  followed  the  same  rule,  in  Ex 
parte  Hunter,  1  Atkins,  228.  But  it  appears  that  in  Ex  parte  Hodg- 
son, 2  Bro.  Ch.  C,  decided  in  1785,  Lord  Thurlow  made  an  innovation 
on  the  rule  in  bankruptcy,  declaring  that  there  was  no  distinction 
between  joint  and  separate  creditors  ;  that  they  ought  to  be  paid  out  of 
the  bankrupt's  estate,  and  his  inoiety  of  the  joint  estate  ;  and  that  the 
joint  creditors  ought  to  come  in  pari  passu  with  the  separate  creditors. 
This  ruling  of  Lord  Thurlow  appears  to  have  had  reference  to  proceed- 
ings at  law,  and  in  bankruptcy,  for  it  is  said  that,  consistently  there- 
with, it  was  competent  for  the  assignees  to  confine  the  joint  creditors, 
where  there  was  a  joint  estate,  to  that  fund  exclusively,  by  filing  a  bill 
in  equit}'  against  the  other  partners,  and  obtaining  an  injunction  on  the 
order  in  bankruptcy.  But  how  far  this  innovation  went,  in  practice,  to 
affect  the  ultimate  rights  of  the  parties,  is  wholly  immaterial,  inasmuch 
as  Lord  Loughborough,  in  Ex  parte  Elton,  3  Ves.  Jr.  238,  in  the  year 
1796,  restored  the  rule  which  previously  prevailed,  holding  that  the 
rule  introduced  by  the  case  of  Hodgson,  was  inconvenient,  inasmuch  as 
every  order  which  he  passed  in  bankruptcy,  giving  a  joint  creditor  a 
dividend  out  of  the  separate  estate  of  a  partner,  would  give  rise  to  a 
bill  in  equity,  on  the  part  of  the  separate  creditors,  to  restrain  the 
order  and  secure  the  application  of  the  separate  estate  to  the  satisfac- 
tion of  the  separate  debts  ;  and  although  it  was  adjudged  that  a  joint 
creditor  might  prove  his  claim  under  a  separate  commission,  yet  he 
could  not  receive  an}'  dividend  therefrom,  until  the  amount  of  his  dis- 
tribution in  the  joint  fund  could  be  ascertained,  and  the  claims  of  the 
separate  creditors  satisfied.  And  the  opinion  of  the  Lord  Chancellor, 
in  this  case,  puts  an  end  to  the  assertion,  which  has  been  sometimes 
made,  that  this  rule  was  peculiar  to  proceedings  in  bankruptcy.  Touch- 
ing this,  he  said:  "If  it  stands  as  a  rule  of  law,  we  must  consider, 
what  I  have  always  understood  to  be  settled  by  a  vast  variety  of  cases, 
not  only  in  bankruptcy,  but  upon  general  equity,  that  the  joint  estate 
is  applicable  to  partnership  debts,  and  the  separate  estate  to  the 
separate  debts."  Again,  in  speaking  of  the  inconvenience  of  Lord 
Thurlow's  rule,  he  said:  "What  I  order  here  to-day,  sitting  in  bank- 
ruptcy, I  shall  forbid  to-morrow,  sitting  in  chancery  ;  for  it  is  quite  of 
course  to  stop  the  dividend  on  a  bill  filed.      The  plain  rule  of  distrv 


§  3.]  CREDITORS    IN   EQUITY.  429 

button  is  that  each  estate  shall  bear  its  oxen  debts.  The  equity  is  so 
plain,  that  it  is  of  course  >'j><>/i  <i  bill  filed." 

Lord  Eldon,  with  some  characteristic  doubts  and  misgivings,  con- 
sistently followed  this  rule  of  his  immediate  predecessor.  Chiswell  v. 
Gray,  9  Ves.  126  ;  Button  v.  Morrison,  17  Ves.  207.  And  it  has  ever 
since  remained  the  settled  law  of  England,  applicable,  not  simply  to 
proceedings  in  bankruptcy,  but  as  a  general  rule  of  equity,  in  the  dis- 
tribution of  the  assets  of  insolvents. 

The  supposition  that  this  rule  arose  from  an}-  provision  of  the  statutes 
concerning  bankruptcy,  in  England,  is  a  mistake  ;  it  was  long  and  well 
settled  as  a  rule  of  equity,  before  any  statute  was  enacted  touching  this 
subject.  It  does  not  appear  to  have  been  sanctioned  by  any  positive 
enactment  until  the  statute  of  6  Geo.  IV.  c.  16,  §  16. 

It  is  not  a  little  remarkable  that  this  rule  of  equity,  so  long  settled 
and  acted  on  in  England,  should  have  encountered  so  much  opposition 
as  it  has  in  the  courts  of  the  several  States  in  this  country. 

In  Pennsylvania  the  rule  was  discarded,  by  a  majority  of  the  court, 
in  the  case  of  Bell  v.  Newman,  5  Serg.  &  R.  78,  decided  in  1819.  And 
the  rule  adopted  in  that  case  was  that  where  a  surviving  partner  dies 
indebted  to  partnership  and  also  to  individual  creditors,  and  leaving 
joint  assets  and  also  separate  assets,  the  separate  creditors  should 
receive  as  much  out  of  the  separate  property  as  the  joint  creditors  could 
receive  from  the  separate  portion  or  share  of  such  partner  in  the  joint 
property  ;  and  that,  then,  the  balance  of  the  separate  property  should 
be  divided  pro  rata  among  both  classes  of  creditors.  This  was  placed 
partly  on  the  ground  of  equity,  and  partly  on  the  ground  of  a  statute 
directing  equality  of  distribution  of  the  assets  of  deceased  persons. 
Judge  Gibson,  however,  dissented,  insisting  forcibly  on  the  rule  adopted 
in  England,  as  a  general  principle  founded  in  equity. 

And  it  has  been  insisted  that  this  case  did  not  strictly  fall  within  the 
application  of  the  principle,  inasmuch  as  the  estate  to  be  distributed  in 
that  case,  was  the  estate  of  a  surviving  partner,  against  which  the 
claims  of  the  joint  creditors  were  as  purely  legal  as  those  of  the  separate 
creditors.  And  Chief  Justice  Tilghman  remarked,  in  the  opinion  of  the 
case,  that  "  no  rule  was  intended  to  be  laid  down  which  may  affect 
cases  differently  circumstanced." 

The  case  of  Sperry's  Estate,  1  Ashmead,  did  not  directly  affect  the 
question,  inasmuch  as  it  came  fully  within  the  exception,  that  where 
there  is  no  joint  fund,  and  no  solvent  partner,  the  separate  and  joint 
creditors  should  be  paid  ratably  out  of  the  separate  estate.  The 
question  was  again  brought  to  the  attention  of  the  court  in  that  iState, 
in  Walker  v.  Eyth,  25  Pa.  St.  216,  where  the  court  express  the  opinion 
that  it  is  a  rule  of  equity  "that,  where  there  are  partnership  and  sep- 
arate creditors,  each  estate  should  be  applied  exclusively  to  the  pay- 
ment of  its  own  creditors,  the  joint  estate  to  the  joint  creditors,  and 
the  separate  estate  to  the  separate  creditors."  But  the  question  was 
not  directly  decided,  the  decision  of  the  case  being  put  upon  another 


430  EIGHTS    AND    REMEDIES   OF   CKEDITOKS.  [CHAP.  V. 

ground.  So  that  the  general  principle,  in  a  case  proper  for  its  appli- 
cation, is  said  to  remain  still  an  open  question  in  Pennsylvania.  1  Am. 
L.  Cases,  483. 

In  Virginia  the  question  was  presented  in  1848,  in  the  case  of 
Morris's  Adm'r  v.  Morris's  Adm'r,  4  Grattan,  293,  and  was  elaborately 
discussed  on  both  sides,  but  the  court  was  equally  divided  on  the 
question  of  the  adoption  of  the  rule  as  a  general  rule  of  equity,  and 
the  decision  of  the  case  was  put  on  other  grounds. 

In  New  Jersey,  in  the  case  of  Wisham  v.  Lippincott,  1  Stockton's 
Ch.  353,  the  rule  was  doubted  as  a  general  principle  of  equitj-,  although 
not  decided. 

In  Vermont,  in  the  case  of  Bardwell  v.  Perry  et  aL,  19  Vt.  292,  the 
rule  was  discarded  as  a  principle  of  equity,  with  this  qualification,  that 
the  separate  creditors  could  require,  in  equity,  that  the  joint  creditors 
should  first  exhaust  the  partnership  funds,  before  coming  in  with  the 
separate  creditors  of  a  partner  for  a  pro  rata  distribution  out  of  his 
separate  estate. 

It  does  not  appear  that  the  doctrine  of  the  English  courts  on  this 
subject  was  ever  adopted  as  a  rule  of  equity  by  the  courts  in  Massa- 
chusetts ;  but  it  is  said  that  a  statute  was  enacted  in  that  State,  in 
1838,  providing,  as  a  rule  for  the  distribution  of  insolvents'  estates, 
that  the  net  proceeds  of  the  separate  estate  shall  go  to  the  separate 
creditors,  and  that  of  the  partnership  estate  to  the  joint  creditors. 

The  rule  appears  to  have  been  discarded  in  Connecticut,  in  the  case 
of  Camp  v.  Grant  et  al,  21  Conn.  41  ;  and  also  in  Mississippi,  in  the 
case  of  Dahlgran,  Adm'r,  v.  Duncan,  7  Sm.  &  Mars.  280  ;  but  adopted 
in  Alabama  in  Bridge  v.  McCullough,  27  Ala.  661. 

In  New  York  it  has  been  adjudged  that  "  the  rule  of  equity  was 
uniform  and  stringent,  that  the  partnership  property  of  a  firm  shall  all 
be  applied  to  the  partnership  debts  to  the  exclusion  of  the  creditors  of 
the  individual  members  of  the  firm  ;  and  that  the  creditors  of  the 
latter  are  to  be  first  paid  out  of  the  separate  effects  of  their  debtor, 
before  the  partnership  creditors  can  claim  anything  therefrom."  Jack- 
son v.  Cornell,  1  Sandf.  Ch.  348.  The  history  of  the  English  rule  was 
somewhat  reviewed  by  Chancellor  Kent,  in  Murray  v.  Murray,  5  John. 
Ch.  60,  and,  upon  full  consideration,  adopted  as  a  rule  of  equity,  by 
Chancellor  Walworth,  in  Wilder  v.  Keeler,  3  Paige,  517;  Payne  v. 
Matthews,  6  Paige,  19  ;  Hutchinson  v.  Smith,  7  Id.  26. 

The  same  doctrine  was  adopted  by  Chancellor  Desaussure,  in  South 
Carolina,  as  early  as  1811,  in  Woddrop  v.  Ward,  3  Des.  Eq.  R.  203  ; 
and  also  by  the  Supreme  Court  of  New  Hampshire,  in  Jarvis  v.  Brooks, 
3  Foster,  136. 

The  subject  was  very  fully  reviewed  in  the  Court  of  Appeals  of 
Maryland,  in  McCulloh  v.  Dashiell's  Adm'r,  1  Harr.  &  Gill,  96, 
wherein  it  was  settled  in  that  State  that  in  equity  the  individual  cred- 
itors of  a  partner  were  entitled  to  a  preference  over  the  joint  creditors 
in  the  distribution  of  the  separate  estate  of  their  debtor. 


R  3.]  CREDITORS   IN    EQUITY.  431 

And  the  same  doctrine  was  settled  by  the  Supreme  Court  of  the 
United  States,  on  full  consideration,  in  Murrill  et  at.   v.  Neill  et  "!.,  8 

How.   414. 

It  has  been  laid  down  generally  by  the  elementary  writers,  both  in 
England  and  in  this  country,  as  a  settled  rule  of  equity.  (After  quot- 
in°°from  Story  on  Partn.  §§  365,  3GG,  3G7,  and  3  Kent's  Com.  65,  the 
learned  judge  continued  :) 

It  is  argued,  however,  that  this  doctrine  was  overruled  in  Ohio,  in 
the  case  of  Grosvenor  v.  Austin.  6  Ohio.  104.  It  is  true,  that  the 
reasoning  of  the  court  in  the  opinion  is  to  that  effect ;  but  the  case 
decided  falls  within  one  of  the  acknowledged  exceptions  to  the  rule. 
Where  the  partnership  has  become  insolvent,  and  there  are  no  partner- 
ship assets  for  distribution,  and  no  living  solvent  partner,  it  has  been 
uniformly  conceded  that  the  principle  of  the  rule  does  not  apply. 
The  case  of  Grosvenor  y.  Austin  was  a  bill  in  equity  by  the  creditors 
of  the  firm  of  Seymour  Austin  &  Calvin  Austin,  for  a  distributive 
share  with  the  individual  creditors  of  Seymour  Austin  out  of  the  assets 
of  his  separate  estate  in  the  hands  of  his  administrator.  There  were 
no  partnership  assets,  and  both  parties  had  died  insolvent.  This  was 
not  a  case,  therefore,  for  the  application  of  the  principle  under  consid- 
eration. And  Judge  Lane,  in  delivering  the  opinion,  says,  as  to  this 
rule:  "This  court  are  of  opinion,  that  if  any  such  rule  exist,  it  must 
have  been  of  frequent  application,  and  thus  have  become  familiar  to 
the  profession.  Yet  no  case  is  found  in  the  books,  except  the  one  in 
9  Vesey,  and  the  South  Carolina  case,  that  touches  such  a  doctrine, 
unless  cases  founded  on  the  statutes  of  bankruptcy.  A  claim  so  novel, 
in  a  case  necessarily  of  such  common  occurrence,  must  be  listened  to 
with  caution  amounting  to  jealousy,"  etc.  Touching  the  subject  of 
this  obiter  opinion,  the  following  remarks  of  the  Supreme  Court  of  the 
United  States,  in  Murrill  v.  Neill,  8  How.  414,  are  in  point : 

"The  rule  in  equity  governing  the  administration  of  insolvent  part- 
nerships is  one  of  familiar  acceptation  and  practice  ;  it  is  one  which  will 
be  found  to  have  been  in  practice  in  this  country  from  the  beginning  of 
our  judicial  history,  and  to  have  been  generally,  if  not  universally, 
received.  This  rule,  with  one  or  two  eccentric  variations  in  the  Eng- 
lish practice  which  may  be  noted  hereafter,  is  believed  to  be  identical 
with  that  prevailing  in  England,  and  is  this:  that  partnership  creditors 
shall,  in  the  first  instance,  be  satisfied  from  the  partnership  estate  ;  and 
separate  or  private  creditors  of  the  individual  partners  from  the  sepa- 
rate and  private  estate  of  the  partners  with  whom  they  have  made 
private  and  individual  contracts  ;  and  that  the  private  and  individual 
property  of  the  partners  shall  not  be  applied  in  extinguishment  of 
partnership  debts,  until  the  separate  and  individual  creditors  of  the 
respective  partners  shall  be  paid.  The  reason  and  foundation  of  this 
rule,  or  its  equality  and  fairness,  the  court  is  not  called  on  to  justify. 
Were  these  less  obvious  than  they  are,  it  were  enough  to  show  the 
early  adoption  and  general  prevalence  of  this  rule,  to  stay  the  hand  of 


432  EIGHTS    AND   KEMEDIES    OF   CREDITORS.  [CHAP.  V. 

innovation  at  this  day  ;  at  least,  under  any  motive  less  strong  than  the 
most  urgent  propriety." 

It  has  been  argued  that  the  statute  in  this  State,  relative  to  the  equal 
distribution  of  the  estates  of  deceased  persons,  and  also  the  statute 
providing  that  all  assignments  of  property  in  contemplation  of  insol- 
vency, giving  preferences  to  creditors,  had  established,  in  this  State, 
a  policj'  inconsistent  with  the  rule  in  question.  These  statutes  were 
certainty  never  intended  to  have  such  an  effect.  The  equality  required 
by  them  is  subordinate  to  the  settled  equities  and  priorities  of  different 
grades  and  classes  of  creditors.  It  was  manifestly  not  the  design  of 
these  statutes  to  change  the  nature  of  partnership  contracts,  and  abro- 
gate the  preference  of  partnership  creditors  in  the  distribution  of  the 
partnership  assets.  And  as  this  was  not  clone,  the  rule  of  equality, 
adopted  in  equity,  requires  the  corresponding  preference  to  be  given  to 
the  individual  creditors  of  each  partner  in  his  separate  estate. 

The  remaining  matter  for  determination,  in  this  case,  involves  the 
inquiry,  whether,  in  case  of  an  indebtedness  for  money  lent  to  the 
partnership  by  a  partner  who  afterward  becomes  insolvent,  the  sepa- 
rate creditors  of  the  latter  shall  be  entitled  therefor  to  a  pro  rata  dis- 
tribution with  the  partnership  creditors,  out  of  the  joint  fund.  It  is 
claimed  that  the  liability  of  the  firm  to  a  partner  for  mone}-  loaned  is  a 
partnership  debt,  and  that  the  individual  creditors  of  that  partner  are, 
in  equhVy,  entitled  to  an  equal  distribution  therefor,  out  of  the  partner- 
ship property.  On  the  other  hand,  it  is  claimed  that  as  each  partner  is 
individually  liable  for  the  debts  of  the  firm,  and  as  no  partner  can  be 
allowed  to  participate  with  his  own  creditors  in  the  distribution  of  a 
fund,  the  separate  creditors  of  a  partner,  as  the}7  can  only  claim 
through  the  rights  of  their  debtor,  cannot  be  allowed  such  participation 
with  the  joint  creditors. 

It  was  at  one  time  held  to  be  the  law,  on  the  authority  of  adjudica- 
tions by  Lord  Talbot  and  Lord  Hardwicke  that  if  a  partner  has  loaned 
mone}'  to  the  partnership,  or  the  partnership  has  loaned  money  to  the 
separate  estate  of  one  of  the  partners,  according  to  the  equitable  rule 
of  distribution  of  the  assets  after  insolvency,  in  the  former  case,  the 
separate  creditors  of  the  partner  would  be  entitled  to  an  equal  share 
out  of  the  joint  assets  to  the  extent  of  the  debt  created  for  the  money 
lent ;  and  that,  in  the  latter  case,  the  partnership  creditors  would  be 
entitled  to  pa}-ment  to  the  same  extent,  out  of  the  individual  estate  of 
the  partner.  Ex  parte  Hunter,  1  Atk.  223  ;  Story  on  Partn.  §  390. 
But  this  doctrine  has  long  since  been  overruled  ;  and  the  contrary 
appears  now  to  be  well  settled.  In  Ex  parte  Lodge,  1  Ves.  Jr.  166, 
Lord  Thurlow  held  that  the  assignees  on  behalf  of  the  joint  estate 
could  not  be  entitled  to  distribution  out  of  the  separate  estate  of  Lodge, 
for  money  which  he  had  abstracted  from  the  partnership,  unless  he 
had  taken  it  with  a  fraudulent  intent  to  augment  his  separate  estate. 
And  in  Ex  parte  Harris,  2  Ves.  &  B.  210,  212,  Lord  Eldon  said: 
"  There  has  long  been  an  end  of  the  law  which  prevailed  in  the  time 


§  3.]  CREDITORS   IN   EQUITY.  433 

of  Lord  Hardwicke,  whose  opinion  appears  to  have  been  that  if  the 
joint  estate  lent  money  to  the  separate  estate  of  one  partner,  or  if  one 
partner  lent  to  the  joint  estate,  proof  might  be  made  by  the  one  or  the 
other,  in  each  ease.  That  has  been  put  an  end  to,  among  other  prin- 
ciples, upon  this  certainly,  that  a  partner  cannot  come  in  competition 
with  separate  creditors  of  his  own,  nor  as  to  the  joint  estate  with  the 
joint  creditors.  The  consequence  is,  that  if  one  partner  lends  £1,000 
to  the  partnership,  and  they  become  insolvent  in  a  week,  he  cannot  be 
a  creditor  of  the  partnership,  though  the  money  was  supplied  to  the 
joint  estate ;  so.  if  the  partnership  lends  to  an  individual  partner,  there 
can  be  no  proof  for  the  joint  against  the  separate  estate  ;  that  is,  in 
each  case  no  proof  to  affect  the  creditors  though  the  individual  part- 
ners may  certainly  have  the  right  against  each  other." 

This  doctrine  proceeds  upon  the  principle  that,  in  the  distribution  of 
the  assets  of  insolvents,  the  equities  of  the  creditors,  whether  joint  or 
separate,  must  be  worked  out  through  the  medium  of  the  partners  ; 
that  creditors  can  only  step  into  the  shoes  of  their  immediate  debtors 
in  reaching  their  effects  where  there  are  conflicting  claims  ;  and  that, 
inasmuch  as  an  individual  partner  could  not  himself  come  in  and  com- 
pete with  the  partnership  creditors,  who  are  in  fact  his  own  creditors, 
in  the  distribution  of  the  fund,  and  thereby  prejudice  those  who  were 
not  only  creditors  of  the  partnership  but  also  of  himself  ;  therefore  the 
separate  creditors  of  a  partner  could  not  enforce  any  claim  to  a  dis- 
tributive share  of  the  joint  effects  against  the  partnership  creditors, 
which  could  not  have  been  enforced  by  the  partner  himself  for  his  own 
benefit.  Story  on  Partnership,  §  390.  The  rule,  however,  that  these 
several  funds  are  to  be  thus  administered  as  they  stood  at  the  time  of 
the  insolvency,  is  to  be  received  with  this  important  limitation,  that  it 
does  not  appby  in  case,  either  where  the  effects  obtained,  creating  the 
debt,  were  taken  from  the  separate  estate  to  augment  the  joint  estate, 
or  from  the  joint  estate  to  augment  the  separate  estate,  fraudulently, 
or  under  circumstances  from  which  fraud  may  be  inferred,  or  under 
which  it  would  be  implied. 

In  the  case  before  us,  however,  it  is  not  pretended  that  the  firm 
obtained  the  borrowed  money  from  Murray  improperly.  The  separate 
creditors  of  Murray,  therefore,  are  not,  on  account  of  this  claim  for 
money  lent  by  Murray  to  the  firm,  entitled  to  participate  with  the 
partnership  creditors  in  the  distribution  of  the  joint  effects. 

Judgment  of  the  Common  Pleas  reversed ;  and  ordered  that  the 
separate  effects  of  Peter  Murray  be  distributed  pro  rata  first  among 
his  individual  creditors,  before  an}-  application  thereof  be  made  to  the 
payment  of  the  partnership  debts  of  Dever  &  Murray  ;  and  that  the 
partnership  effects  be  applied  first  to  the  payment  of  the  partnership 
debts,  irrespective  of  the  claim  of  the  partner,  Peter  Murray,  for 
money  loaned  by  him  to  the  firm. 

Swan,  Brinkeriioff,  Scott,  and  Sdtliff,  JJ. ,  concurred. 

28 


434  EIGHTS   AND   REMEDIES   OF   CREDITORS.  [CHAP.  V. 

holmes  v.  Mcdowell  et  al.1 

15  Hun  (N.  Y.),  585.     1878. 

Westbrook,  J.  The  first  of  the  above  entitled  actions  was  one  to 
wind  up  a  co-partnership,  of  which  Henry  C.  Holmes  and  James  H. 
McDowell  had  been  the  sole  members.  The  object  of  the  action  was 
to  adjust  the  affairs  of  the  partnership,  which  was  insolvent,  and  to 
divide  the  property  equally  among  its  creditors.  The  suit  was  com- 
menced March  20,  1878,  and  on  the  26th  day  of  the  same  month, 
by  stipulation  between  the  attorneys,  an  order  of  this  court  was  made 
making  Henry  C.  Holmes  the  receiver  of  the  partnership  property 
without  security  and  without  compensation.  On  the  2d  day  of  May, 
1878,  also  by  stipulation  between  the  parties,  an  order  was  entered 
making  Theodore  A.  Claxton  receiver  instead  of  Holmes,  and  requir- 
ing him  to  give  a  bond  with  one  surety. 

After  the  commencement  of  the  first  above-entitled  action,  and 
after  the  appointment  of  Holmes  as  receiver,  the  other  actions  were 
commenced.  They  were  brought  by  the  creditors  of  the  firm  of 
Holmes  &  McDowell,  and  judgments  were  obtained  in  them  in  due 
time,  on  which  executions  were  duly  issued  and  returned  unsatisfied. 
By  proceedings  supplementary  to  execution,  Theodore  A.  Claxton 
was  made  receiver  on  the  3d  day  of  May,  1878,  which  was  one  day 
after  he  had  been  appointed  to  the  same  position  in  the  suit  between 
the  partners. 

The  plaintiffs,  in  actions  Nos.  two,  three,  and  four,  after  the 
appointment  of  the  receiver  in  their  proceedings,  moved  this  court 
for  an  order  directing  him  to  pay  their  judgments.  The  court,  at 
Special  Term,  Mr.  Justice  Ingalls  presiding,  ordered  the  receiver 
to  execute  a  new  bond  in  action  number  one  with  two  sureties,  and 
upon  his  so  doing  the  motion  was  to  be  deuied  without  costs.  The 
new  bond  was  executed,  filed,  and  approved  upon  the  same  day  the 
order  was  entered,  and  from  this  order  the  plaintiffs  in  the  three 
actions,  Nos.  two,  three,  and  four,  appealed. 

Action  number  one  is  at  issue  and  undetermined.  The  firm  of 
Holmes  &  McDowell  is  insolvent,  and  the  other  creditors  of  the  firm 
have  no  notice  of  these  proceedings.  It  is  claimed  by  the  appellants 
that  the  order  of  the  Special  Term  was  erroneous  for  two  reasons. 
First,  because  the  order  appointing  Claxton  receiver  in  action  num- 
ber one  was  void,  for  the  reason  that  his  bond  was  required  to  be 
with  only  one  surety;  and  second,  because  those  creditors  who  had 
been  diligent  in  the  prosecution  of  their  claims  to  judgment  and  exe- 
cution, were  entitled  to  priority.  Each  of  these  points  will  now  be 
considered. 

It  is  conceded,  that  the  Code  of  Civil  Procedure,  §  715,  requires  a 
bond  given  by  a  receiver  to  be  one  with  two  sureties;  but  it  is  also 

1  The  titles  of  the  three  other  actions  referred  to  in  the  opinion  have  been  omitted. 


§  3.]  CREDITORS    IN   EQUITY.  435 

true  that  §  730  provides  that  the  court  "  may,  on  the  application  of 
the  persons  who  executed  it,  amend  it  accordingly ;  ami  it  shall  there- 
upon be  valid  from  the  time  of  its  execution."     It  is  argued,  how- 
ever, that  the  vice  inhered  in  the  origiual  order  itself,  and  that  was 
void  because  it  provided  for  but  one  surety  by  the  receiver.     The 
error  in  this  reasoning  is,  that  it  assumes  the  power  exercised  by  the 
Supreme  Court,  in  the  appointment  of  the  receiver,  was  derived  from 
the  statute,  and  that,  therefore,  all  its  directions  must  be  implicitly 
followed;  whereas,   the  right  of  this  court  to  appoint  a  receiver  in 
actions  to  wind  up  partnerships  is  as  old  as  the  jurisdiction  of  the 
Court  of  Chancery,  to  the  prerogatives  of  which  the  Supreme  Court 
succeeds.     Having  this  general  power,  it  follows  that  the  mode  and 
manner  of  its  exercise,  unless  declared  to  be  jurisdictional,  is  direc- 
tory only.     So  far  from  making  a  failure  to  follow  all  its  require- 
ments fatal  to  the  proceeding  instituted,  the  Code,  after  enumerating 
several  imperfections,  which  shall  not,  after  "  verdict  or  decision," 
invalidate  the  judgment  by   §  722,  expressly  enacts:  "  Each  of  the 
omissions,  imperfections,  defects,  and  variances,  specified  in  the  last 
section,  and  any  other  of  like  nature,  not  being  against  the  right  and 
justice  of  the  matter,  and  not  altering  the  issue  between  the  parties, 
or  the  trial,  must,  when  necessary,  be  supplied  and  the  proceeding 
amended  by  the  court  wherein  the  judgment  is  rendered,  or  by  an 
appellate  court."     If  it  be  said  that  this  section  refers  to  cases  in 
which  judgment  has  been  rendered,  and  that  in  action  number  one 
there  was  none,  the  fact  in  the  statement  may  be  admitted  without 
impairing  the  argument  to  be  drawn  from  the  provision  just  quoted. 
If  this  power  of  amendment  must,  as  the  mandatory  language  requires, 
be  exercised  after  judgment,  it  certainly  contains  no  limitation  upon 
the  right  of  the  court  to  exercise  it  before.     Indeed,  the  whole  title 
of  the  Code,  title  1,  chap.  8,  of  which  the  section  just  quoted  forms 
a  part,  is  not  an  enabling  statute  authorizing  the  court  to  do  what  it 
was  prior  to  its  passage  powerless  to  accomplish,  but  is  rather  a  com- 
mand to  exercise  the  powers  it  already  possessed.     What  the  court 
is  required  to  do  by  §  722,  after  judgment,  it  is  also  commanded  to 
do  by  §  723,  before  judgment,  in  these  words:  "And,  in  every  stage 
of  the  action,  the  court  must  disregard   an  error  or  defect,   in  the 
pleadings  or  other  proceedings,  which  does  not  affect  the  substantial 
rights  of  the  adverse  party."     It  follows,  then,  we  think,  very  clearly 
that,  the  original  order  appointing  Claxton  receiver  in  action  num- 
ber one  was  not  void,  and  that  this  court  at  Special  Term,  by  virtue 
of  its  general  equity  powers,  as  well  as  by  the  express  provisions  of 
the  Code,  had  the  right  to  amend  it. 

From  the  fact,  then,  that  the  original  order  appointing  Claxton 
receiver  was  not  void,  by  reason  either  of  the  terms  of  the  order,  or 
on  account  of  the  bond  having  but  one  surety  as  such  order  provided, 
it  follows  that  the  plaintiffs  in  actions  Nos.  two,  three,  and  four  were 
not  entitled  to  be  paid,  because  of  the  invalidity  of  the  first  appoint- 


436  -    EIGHTS   AND   REMEDIES   OF   CREDITORS.  [CHAP.  V. 

merit  of  the  receiver;  and  if  they  are  to  succeed  upon  this  appeal,  it 
must  be  because  the  recovery  of  their  judgments  and  subsequent  pro- 
ceedings entitle  them  to  priority  of  payment.  That  position  will 
now  be  examined.  It  will  not  be  denied  that  failing  debtors  can,  by 
voluntary  assignment,  place  the  title  to  their  property  in  the  hands 
of  trustees,  to  be  converted  into  money  for  equal  distribution  among 
their  creditors.  Whilst  such  a  trust  was  being  honestly  adminis- 
tered, no  creditor  by  suit  could  obtain  a  preference  over  others;  nor 
could  the  parties  who  made  the  assignment,  after  the  acceptance  of 
the  trust  by  the  assignee,  take  it  from  his  hands  without  the  consent 
of  the  creditors,  and  prevent  its  distribution.  If  an  insolvent  part- 
nership could,  by  their  unaided  action,  thus  place  its  assets  into  the 
hands  of  a  trustee  for  equal  distribution,  why  may  it  not  come  into 
a  court  which  has  plenary  power  thus  to  distribute  the  estate  with- 
out the  consent  of  the  partners,  and  ask  that  the  order  of  the  court 
shall  place  the  effects  in  the  hands  of  its  own  officer  for  the  same 
purpose? 

Is  not  the  consent  of  the  parties  in  open  court  to  an  order  by  the 
court,  and  the  acceptance  of  the  trust  by  the  court,  indicated  by  its 
order,  and  the  appointment  of  its  receiver,  equivalent  to,  and  as  valid 
as  the  appointment  of  an  assignee  by  general  assignment,  voluntarily 
made  and  accepted  without  the  order  of  the  court?  Cannot  parties 
do,  with  the  sanction  and  permission  of  a  court  of  competent  juris- 
diction, that  which  they  might  properly  do  without  it,  and  is  a  trust 
which  the  court  has  accepted  by  the  consent  of  parties  liable  to  be 
terminated  at  the  will  of  those  who  asked  its  aid,  whilst  one  taken 
by  an  individual  through  force  of  a  written  consent  from  the  same 
source  is  irrevocable?  If  these  questions  must,  on  the  authority  of 
prior  adjudications,  be  answered  in  favor  of  the  appellants,  we  would 
still  be  unable,  by  any  reasoning  known  to  us,  to  demonstrate  the 
correctness  of  such  a  response.  It  is  true  that  the  cause  in  which 
the  appointment  of  the  receiver  was  made  has  not  yet  proceeded  to 
judgment;  but  it  is  also  true  that  the  owners  of  the  partnership  prop- 
erty have,  by  their  voluntary  act,  placed  it  in  the  hands  of  this  court 
for  equal  distribution,  and  that  the  court  has  assumed  jurisdiction 
over  it  for  that  purpose.  It  has  not  yet  made  its  final  orders  of  dis- 
tribution, but  by  the  appointment  of  its  receiver  it  has  assured  all 
persons  interested  that  it  will  make  that  order  in  due  time,  and  until 
it  settles  the  terms  thereof  it  will  hold  it  for  that  purpose.  If  one 
or  more  creditors  can,  under  such  circumstances,  obtain  priority  by 
judgment  and  execution,  then  the  Supreme  Court  is  powerless  to 
accomplish  what  it  has  undertaken  to  do;  and  if  the  parties  to  the 
action  may  discontinue  it,  vacate  the  order  appointing  a  receiver, 
and  resume  control  of  the  property,  then  the  court  is  only  the  creature 
of  the  will  of  others,  and  not  the  independent  power  clothed  with  the 
authority  to  do  what  it  has  undertaken ;  and  though,  at  the  instance 
of  owners,  it  has  assumed  a  trusteeship  for  the  benefit  of  all  creditors, 


§  3.]  CREDITORS   IN    EQUITY.  437 

it  must,  nevertheless,  suspend  its  functions  at  the  beck  and  instance 
of  those  persons  who  first  invoked  them.  Such  a  conclusion,  it  seems 
to  us,  must  be  unsound.  The  court  holds  the  property  of  the  insol- 
vent firm  for  equal  distribution,  and  will  not,  and  ought  not  to  sur- 
render its  trust,  or  do  any  act  which  will  prevent  it  from  doing  full 
and  complete  justice  to  all  parties  interested.  Neither  can  its  action 
be  unreasonably  delayed.  The  property,  or  fund  from  its  sale,  is  in 
the  hands  of  the  court,  and  any  one  interested  may  quicken  action  by 
proper  application.  There  can  be,  it  seems  to  us,  no  sound  or  good 
reason  for  taking  from  the  court  the  trust  it  has  assumed.  It  holds 
the  property  in  trust  for  the  benefit  of  those  who  may  be  entitled  to 
it,  and  all  can  be  fully  protected.  "Why  should  it,  too,  upon  an  ex 
parte  application,  without  hearing  and  notice  to  all  interested,  grant 
the  relief  asked  for  by  the  motion  of  the  appellants?  There  may  be 
other  parties  not  heard  who  have  superior  equities  upon  the  funds  in 
its  hands,  even  though  an  equal  distribution  is  defeated.  It  should 
not,  therefore,  be  paid  out  until,  in  some  way,  the  rights  of  all  are 
settled  and  ascertained.  It  would  be  manifestly  unjust,  as  it  seems 
to  us,  at  this  stage  of  the  proceedings,  at  least,  to  part  with  the 
property,  or  any  part  thereof. 

It  may,  however,  be  argued  that  the  principles  which  have  been 
enunciated  are  at  war  with  adjudged  cases,  and  particularly  with 
Waring  v.  Robinson,  1  Iloff.  524;  Adams  v.  Hackett,  7  Cal.  187; 
Adams  v.  Woods,  8  Id.  153;  Adams  v.  Woods  and  Haskell,  9  Id. 
24,  which  are  relied  upon  to  sustain  the  appeal.  If  those  cases  do 
decide  that  insolvent  partners  cannot  in  good  faith  come  into  a  court 
of  equity  and  ask  it  to  make  a  just  and  equal  distribution  of  the 
partnership  property  among  creditors,  and  when  the  court  has  entered 
upon  the  execution  of  the  trust  with  the  consent  of  all  the  owners, 
by  the  appointment  of  its  receiver  thereof,  that  its  jurisdiction  and 
power  can  be  thwarted  by  the  action  of  one  or  more  creditors  seeking 
a  priority  by  judgment  and  execution,  then  they  cannot  be  acquiesced 
in  and  followed  by  this  court.  A  court  of  equity  has  as  full  and 
ample  power  to  administer  and  dispose  of  the  insolvent  debtor's 
estate,  voluntarily  entrusted  to  it  by  its  owner,  as  the  Federal  Bank- 
rupt Court  had  over  the  estate  of  an  insolvent  debtor  who  instituted 
voluntary  proceedings  in  bankruptcy.  An  action  at  law  in  behalf  of 
any  creditor  can  no  more  take  the  funds  and  property  out  of  the  hands 
of  the  one  court  than  out  of  those  of  the  other;  and  whilst,  to  a  cer- 
tain extent,  it  is  true  that  in  both  cases  the  proceeding  is  somewhat 
subjected  to  the  control  of  the  parties  instituting  it,  yet  it  must  also 
be  true,  that  when  the  court  has  acted  upon  the  application,  and 
vested  the  property  in  the  one  case  in  an  officer  called  an  assignee, 
and  in  the  other  in  one  called  a  receiver,  but  both  possessing  the 
same  power  and  appointed  for  the  same  purpose,  —  that  of  holding 
the  property  pending  a  final  decree,  —  in  neither  instance  can  the  par- 
tics  who  have  ylaced  the  property  in  the  hands  of  the  court  by  their 


438  RIGHTS   AND   REMEDIES    OF   CREDITORS.  [CHAP.  V. 

own  action  deprive  the  court  of  its  power  to  distribute.  The  prop- 
erty, when  once  in  the  hands  of  the  court,  is  pledged  and  dedicated 
to  the  objects  of  the  proceeding,  and  in  it  others  become  interested 
who  have  a  right  to  invoke  the  action  of  the  tribunal  which  has 
assumed  control  over  it.  But  the  cases  cited  are  unlike  the  present. 
In  all  of  them  the  suit  was  instituted  by  the  one  partner  against  the 
other  for  his  own  protection  against  the  alleged  fraudulent  conduct 
of  such  other.  They  all  lacked  the  elements  of  admitted  insolvency, 
and  the  consent  of  all  the  partners  to  the  court's  taking  the  property 
and  holding  it  for  a  final,  just,  and  equal  distribution  among  all  cred- 
itors. It  is  possible,  though  it  is  not  fully  conceded  to  be  sound,  that 
when  one  partner  seeks  the  aid  of  the  court  against  the  other,  and 
the  tribunal  invoked  simply  holds  the  property  for  the  benefit  of  its 
owners,  it  may  permit  one  creditor  to  obtain  priority  over  another. 
Perhaps  in  such  a  case,  as  the  court  has  not  taken  the  preliminary 
step  for  the  purpose  of  making  a  final  distribution  among  creditors, 
it  might  be  plausibly  argued  that  the  creditors  seeking  payment  by 
action  are  not  endeavoring  to  defeat  the  trust  which  the  court  has 
assumed.  In  the  case  before  us,  however,  no  such  argument  can  pos- 
sibly apply.  The  court  has  assumed  to  act,  with  the  consent  of  the 
original  owners,  to  make  a  just  and  equal  distribution.  It  holds 
the  property  for  that  purpose.  Creditors  are  the  cestui  que  trusts  of 
the  court,  and  they  cannot  be  defrauded  unless  the  court  lends  itself 
to  the  fraud.  The  tribunal  which  has  assumed  to  act  must  proceed, 
and  such  action  can  neither  be  thwarted  nor  defeated  by  the  action  of 

any  creditor. 

The  order  appealed  from  must  be  affirmed,  with  ten  dollars  costs 
and  the  disbursements  for  printing. 

Board  man,  J.,  concurred.     Learned,  P.  J.,  dissented. 


DAVIS  v.    HOWELL. 

33  N.  J.  Eq.  72.     1880. 

PvUnton,  Chancellor.  John  C.  Bennett  and  James  M.  Andrews 
were,  on  or  about  the  10th  of  February,  1876,  partners  in  business  in 
Phillipsburg.  On  that  day  they  made  an  assignment  under  the  Assign- 
ment Act,  for  the  equal  benefit  of  their  creditors,  to  the  complainant, 
William  M.  Davis.  Five  days  after  the  making  of  that  assignment 
Andrews  made  an  assignment  under  the  act  for  the  equal  benefit  of 
his  creditors  to  the  complainant  and  Joseph  Howell,  and  about  the 
same  time  Bennett  made  a  like  assignment  to  Sylvester  A.  Comstock 
and  Charles  F.  Fitch.  The  partnership  estate  will  pay  a  dividend  of 
only  about  eleven  per  cent  of  the  partnership  debts.  Most  of  the 
partnership  creditors  have  put  in  their  claims  under  the  assignment 


§  3.]  CREDITORS    IX    EQUITY.  439 

of  Andrews,  and  claim  and  insist  upon  a  proportionate  participation 
with  his  individual  creditors  therein  as  to  so  much  of  their  claims  as 
may  not  be  paid  out  of  the  partnership  estate,  and  they  threaten  the 
complainant  and  his  co-assignee  of  Andrews'  estate  with  legal  pro- 
ceedings if  their  demand  be  not  complied  with.  The  complainant 
therefore  comes  into  this  court  for  protection  and  instructions  as  to 
his  duty  in  the  premises.  His  co-assignee,  Howell,  is  a  creditor  of 
Andrews'  estate,  and  he  is  made  a  defendant. 

The  question  presented  has  been  often  discussed,  and  though  there 
exists  some  contrariety  of  judicial  determination  upon  it,  must  be 
considered  as  settled  by  the  great  weight  of  authority.  The  rule  is 
laid  down  in  the  text-books  that  joint  debts  are  entitled  to  priority  of 
payment  out  of  the  joint  estate,  and  separate  debts  out  of  the  separate 
estate.  Story's  Eq.  Jur.  §  675;  Snell's  Prin.  of  Eq.  419;  Story  on 
Partn.  §  376;  3  Kent's  Com.  64,  65;  Pars,  on  Partn.  480.  And  though 
the  propriety  of  the  rule  has  been  often  and  persistently  questioned 
on  the  ground  that  it  is  a  violation  of  principle,  and  devoid  of  equity, 
and  was  originally  adopted  from  considerations  of  convenience  only, 
and  in  bankruptcy  cases,  and  not  on  principles  of  general  equity,  yet 
it  is  so  firmly  established  that  it  must  be  regarded  as  a  tixed  rule  of 
equity.  Its  history  is  so  well  known,  and  has  been  so  often  stated, 
that  it  is  profitless  to  repeat  it.  It  was  declared  in  1715,  in  Ex  parte 
Crowder,  2  Vera.  706;  it  wras  affirmed  by  Lord  Hardwicke,  and 
though  Lord  Thurlow  refused  to  follow  it,  it  was  restored  by  Lord 
Loughborough  and  followed  by  Lord  Eldon,  and  it  has  existed  ever 
since  in  the  English  Chancery.  It  has  an  exception  where  there  is 
no  joint  estate  and  no  solvent  partner.  But  where  there  is  any 
joint  estate  the  rule  is  to  be  applied.  That  part  of  the  rule  which 
gives  the  joint  creditors  a  preference  upon  the  joint  estate  has  been 
repeatedly  recognized  in  this  State.  Cammack  v.  Johnson,  1  Gr.  Ch. 
163;  Matlack  v.  James,  2  Beas.  126;  Mittnight  v.  Smith,  2  C.  E.  Gr. 
259;  Scull  v.  Alter,  1  Harr.  147;  Curtis  v.  Hollingshead,  2  Gr.  402; 
Brown  v.  Bissett,  1  Zabr.  46;  Linford  v.  Linford,  4  Dutch.  113.  In 
Scull  v.  Alter  the  Supreme  Court  recognized  the  rule  in  all  its  parts. 
Chief  Justice  Hornblower,  by  whom  the  opinion  of  the  court  was 
delivered  (the  question  arose  under  an  assignment  under  the  Assign- 
ment Act,  and  was  the  same  as  is  presented  in  this  case),  said:  "  But 
if  it  is  an  assignment  not  only  of  the  partnership  effects  and  property 
of  the  firm  of  Carhart  &  Britton,  but  also  an  individual  and  several 
assignment  by  them  of  their  respective  and  several  estates,  then  it 
must  be  treated  as  such.  The  estates  and  debts  must  be  marshalled; 
the  partnership  effects  applied  in  the  first  instance  to  the  partnership 
debts;  the  effects  of  Carhart  applied  in  the  first  instance  to  the  pay- 
ment of  his  separate  debts,  and  in  like  manner  the  effects  of  Britton 
to  the  payment  of  debts  due  from  him  individually." 

In  Connecticut  the  rule  is  not  followed,  and  that  part  of  it  which 
gives  the  separate  creditors  a  preference  upon  the  separate  estate  has 


440  EIGHTS    AND    REMEDIES    OF    CREDITORS.  [CHAP.  V. 

been  repudiated.  Camp  v.  Grant,  21  Conn.  41.  It  has  been  repudiated 
also  in  certain  other  States.  Bardwell  v.  Perry,  19  Vt.  292 ;  Emanuel 
v.  Bird,  19  Ala.  596.  But  the  doctrine  is  recognized  elsewhere,  and 
has  been  established  after  thorough  discussion  and  careful  considera- 
tion. In  Wilder  v.  Keeler,  3  Paige,  167,  Chancellor  Walworth, 
after  a  full  discussion  of  the  subject,  gives  the  sanction  of  his 
weighty  opinion  to  the  rule  as  a  doctrine  of  equity.  He  says:  "In 
the  case  now  under  consideration  there  was  at  the  death  of  G.  F. 
Lush  a  large  joint  fund  belonging  to  the  partnership,  out  of  which 
the  joint  creditors  were  entitled  to  a  priority  of  payment,  and  out  of 
which  several  of  the  joint  creditors  who  have  come  in  under  this  decree 
have  actually  secured  a  portion  of  their  debts.  Nothing  but  an  un- 
bending rule  of  law  should,  under  such  circumstances,  induce  the 
court  to  permit  them  to  come  in  for  the  residue  of  their  debts,  ratably, 
with  the  separate  creditors.  The  amount  of  the  fund  which  will 
remain  after  paying  the  separate  creditors,  being  a  fund  which  could 
not  be  reached  at  law  by  the  joint  creditors  whose  remedy  survived 
against  the  surviving  partner  alone,  must  be  considered  in  the  nature 
of  equitable  assets,  and  must  be  distributed  among  the  joint  cred- 
itors, upon  the  principle  of  this  court  that  equality  is  equity."  The 
doctrine  was  recognized  in  Morgan  v.  Skidmore,  55  Barb.  263.  In 
Pennsylvania,  in  Bell  v.  Newman,  5  S.  &  R.  78,  91,  92,  Gibson 
(afterward  chief  justice),  in  a  dissenting  opinion,  strongly  supports 
the  rule  as  one  founded  on  the  most  substantial  justice.  In  Black's 
Appeal,  44  Pa.  St.  503,  and  again  in  McCormack's  Appeal,  55  Id. 
252,  the  doctrine  is  completely  recognized  and  affirmed.  In  South 
Carolina,  in  Woddrop  v.  Price,  3  Desauss.  203 ;  Tunno  v.  Trezevant, 
2  Id.  264,  and  Hall  v.  Hall,  2  McCord's  Ch.  269,  the  doctrine  was 
held  to  be  a  doctrine  of  equity.  In  Massachusetts  it  is  established 
by  statute.  In  Murrill  v.  Neill,  8  How.  414,  it  is  recognized  by  the 
Supreme  Court  of  the  United  States. 

The  objection  that  is  always  pressed  as  the  conclusive  argument 
against  it  is  that  partnership  debts  are  several  as  well  as  joint,  and 
it  is  urged  that  therefore  the  partnership  creditor  has  an  equal  claim 
upon  the  individual  estate  with  the  separate  creditor.  But  it  is  be- 
yond dispute  that  in  equity  the  former  has  a  preferred  claim  upon  the 
partnership  estate.  To  accord  to  him  an  equal  claim,  as  to  the  balance 
of  his  debt  which  the  partnership  assets  may  not  be  sufficient  to  sat- 
isfy, with  the  individual  creditor,  would  be  to  give  him  an  advantage 
to  which  he  is  not  equitably  entitled.  If  he  obtains  a  legal  lien  on 
the  separate  estate  he  will  not  be  deprived  of  it.  Wisham  v.  Lippin- 
cott,  1  Stockt.  353;  Randolph  v.  Daly,  1  C.  E.  Gr.  313;  National 
Bank  v.  Sprague,  5  Id.  13 ;  Howell  v.  Teel,  2  Stew.  Eq.  490.  But  if 
he  has  no  such  lien  and  the  assets  are  to  be  marshalled  in  equity,  that 
same  equitable  doctrine  by  which  the  partnership  assets  are  devoted 
in  the  first  place  to  the  payment  of  his  debt  to  the  exclusion  of  the 
separate  creditor,  and  to  which  he  is  indebted  for  the  preference,  will, 


§3.]  CREDITORS   IX    EQUITY.  441 

in  like  manner,  and  for  like  reason,  give  the  latter  preference  upon 
the   separate    property.      Such    was    the   view   of   Chancellor   Kent. 
He  says:  "  So  far  as  the  partnership  property  has  been  acquired  by 
ineans'of  partnership  debts,  those  debts  have  in  equity  a  priority  of 
claim  to  be  discharged,  and  the  separate  creditors  are  only  entitled 
in  equity  to  such  payment  from  the  surplus  of  the  joint  fund  after 
satisfaction  of  the  joint  debts.     The  equity  of  the  rule,  on  the  other 
hand,  equally  requires  that  the  joint  creditors  should  only  look  to  the 
surplus  of  the  separate  estates  of  the  partners  after  payment  of  the 
separate  debts.     It  was  a  principle  of  the  Roman  law,  and  it  has  been 
acknowledged  in  the  equity  jurisprudence  of  Spain,  England,  and  the 
United  States,  that  partnership  debts  must  be  paid  out  of  the  part- 
nership estate,  and  private  and  separate  debts  out  of  the  private  and 
separate  estate  of  the   individual  partner."     3  Kent's  Com.  64,  65. 
The  obvious  infirmity  of  the  objection  to  the  rule  is  that  it  leaves  out 
of  consideration  the  fact  that  it  is  to  equity  that  the  joint  creditor  is 
indebted  for  his  preference.     It  is  also  urged  that  instead  of  the  rule, 
it  would  be  more  equitable  to  require  the  joint  creditor  to  have  re- 
course to  the  partnership  property  before  allowing  him  to  participate 
in  the  separate  estate,  on  the  equitable  ground  that  he  has  two  funds 
for  the  payment  of  his  debt  while  the  separate  creditor  has  but  one; 
but  the  rule  as  established  is  a  rule  of  justice  and  equity.     It  has  for 
its  basis  the  presumption  that  joint  debts  have  been  contracted  on 
the  credit  of  the  joint  estate,  and  separate  debts  on  that  of  the  sep- 
arate estate.     It  has  the  weight  of  great  authority  and  long  establish- 
ment, notwithstanding  persistent  objection  and  some  fluctuation,  and 
it  is  based  on  equitable  principles.     Sound  policy  is  in  its  favor. 
Though  there  may  be,   as  there  are  in  the  case  of  all  such  rules, 
instances  in  which  it  works  unsatisfactorily,  yet  that,  on  the  whole, 
and  as  a  rule,  it  has  not  operated  unjustly,  is  evidenced  by  the  fact 
that  it  has  existed  so  long  {Ex  parte  Crowder  was  decided  in  1715), 
notwithstanding  opposition,  and  that  in  Massachusetts  at  least  it  has, 
in  the  face  of  the  opposition  referred  to,  been  established  by  legisla- 
tive authority,  and  that,  too,  as  lately  as  1838.     In  this  State  it  has, 
as  has  been  shown,  the  sanction  of  our  judicial  tribunals,  and  it  is 
too  firmly  established  to  be  disturbed.     It  is  true  that  in  AVisham  v. 
Lippincott,    1    Stockt.    353,    35G,    the   Chancellor   expressed   strong 
doubt  of    its  correctness  as  a  general  rule;    but  in  the  other   cases 
before  cited,  both  previous  and  subsequent,  the  rule  has  been  recog- 
nized without  any  expression  of  disapprobation  or  dissatisfaction. 

There  will  be  a  decree  that  the  joint  assets  be  first  applied  to  the 
payment  of  the  joint  debts,  and  the  separate  assets  to  the  separate 
debts,  and  that  the  joint  creditors  may  participate  in  any  surplus  of 
the  separate  assets  which  may  remain  after  payment  of  the  separate 
debts.  The  costs  of  the  parties  will  be  paid  out  of  the  funds  repre- 
sented by  the  complainant  —  the  partnership  estate  —  and  Andrews 
estate  in  equal  shares. 


442  EIGHTS   AND   REMEDIES   OF   CREDITORS.  [CHAP.  V. 

PEOPLE   v.    E.    REMINGTON    &    SONS. 
121  N.  Y.  328.     1890. 

Gray,  J.  The  only  question  presented  for  our  consideration  and 
determination  by  this  appeal  is,  whether  the  creditor  of  this  insolvent 
corporation  was  entitled  to  prove  and  receive  a  dividend  upon  the  full 
amount  of  the  debt  due  from  the  insolvent  estate;  or  whether  the 
receivers,  as  the  personal  representatives  of  the  insolvent,  could  reduce 
the  claim  of  the  creditor,  for  the  purpose  of  a  dividend,  by  compelling 
a  deduction,  from  the  amount  of  the  proved  debt,  of  the  value  of  col- 
lateral securities,  or  of  any  proceeds  thereof.  (After  referring  to  the 
conflict  of  opinion  on  this  subject,  and  to  the  bankruptcy  rule,  the 
learned  judge  continued:)  The  agreement  between  the  debtor  and 
creditor  was  that  the  debt  should  be  paid.  That  debt  was  a  definite 
quantity,  and  nothing  less  than  its  full  amount  can  be  said  to  be  the 
debt.  It  is  not  altered  or  affected  in  its  amount  because  the  creditor 
may  hold  some  collateral  security.  That  is  not  a  factor  of  the  debt, 
but  is  merely  an  incident  to  the  debt.  The  very  force  and  meaning 
of  a  collateral  security  are  in  the  idea  of  a  guarantee  of  the  perform- 
ance of  the  principal  agreement,  which  was  to  pay  the  debt.  The 
property  which  a  creditor  holds  as  collateral  to  the  indebtedness  of 
his  debtor,  secures  him  to  that  extent,  in  case  his  debt  is  not  paid 
in  full  by  the  debtor,  or  by  his  estate. 

As  between  the  creditor  and  his  debtor,  the  latter  could  not  compel 
the  former  to  resort  first  to  his  collaterals  before  asserting  his  claim 
by  a  personal  suit.  The  debtor  has  no  control  over  the  application 
of  the  collaterals.  It  is  a  general  rule  of  equity  that  the  creditor  is 
not  bound  to  apply  his  collateral  securities  before  enforcing  his  direct 
remedies  against  the  debtor.  1  Story  Eq.  Jur.  §  640;  Lewis  v. 
United  States,  92  U.  S.  618.  Then  on  what  principle  can  we  hold 
that  because  the  debtor  becomes  insolvent  the  contract  with  his  cred- 
itor is  changed,  and  that  the  creditor  cannot,  under  those  circum- 
stances, enforce  his  direct  claim  against  the  debtor  until  he  has 
realized  on  his  securities?  Is  the  rule  capable  of  such  inversion? 
I  cannot  see  any  reason  in  the  proposition.  I  do  not  see  why,  in  the 
absence  of  intervention  by  positive  or  statutory  law,  the  engagements 
of  parties  should  be  varied.  If  in  bankruptcy  another  method  was 
prescribed  by  the  statute  for  the  proof  and  payment  of  debts,  it  was 
a  matter  purely  within  the  discretion  of  the  Federal  Legislature.  Its 
constitutional  right  to  establish  uniform  laws  on  the  subject  of  bank- 
ruptcies throughout  the  United  States  obviously  included  the  power 
to  prescribe  the  mode  of  marshalling  the  insolvent's  assets  for  dis- 
tribution among  creditors;  and  being  the  law  of  the  country,  it 
becomes  a  part  of  every  contract.  But  this  furnishes  no  reason  why 
the  established  rules  of  courts  of  equity  should  be  changed  in  the 
administration  of  the  estates  of  insolvents. 


§  3.]  CREDITORS    IN    EQUITY.  443 

In  Kellock's  Case,  L.  R.  3  Ch.  769,  decided  in  1868,  it  was  held 
that  in  the  winding  up  of  a  company  under  the  Companies  Act  of 
1862,  a  creditor  holding  security  might  prove  for  the  whole  amount 
due  to  him,  and  not  merely,  as  in  bankruptcy,  for  the  balance  remain- 
ing due  after  realizing  upon  or  valuing  his  security.     In  Greenwood 
v.  Taylor,  1  Russ.  &  M.  185,  decided  in  1830,  it  had  been  held  that 
the  practice  in  bankruptcy  furnished  a  precedent   which  should   be 
followed  in  the  administration  of  assets;  but  in  Mason  v.  Bogg,  2 
31  vine    v.v    C.   -147,    decided   in    1837,    Lord    Chancellor    Cottenham 
said:  "  That  the  principle  which  the  decision  in  Greenwood  y.  Taylor 
professes  to  follow  cannot  be  the  principle  of  a  court  of  equity  is 
further  proved  by  the  circumstance  that  in  bankruptcy  a  particular 
mode  is  prescribed.     A  creditor  may  there  prove,  but  then  he  must 
give  up  his  security;  or  he  may  obtain  an  order  that  his  security 
should   be  sold,   and   that  he  should  prove  for  the  difference.     In 
equity,  however,  a  party  may  come  in  and  prove  without  giving  up 
or  affecting  his  securities,  except  so  far  as  the  amount  of  his  debt 
may  be  diminished  by  what  he  may  receive."     Mason  v.  Boggs  was 
a  case  of   the  administration  of  the  insolvent  estate  of  a  deceased 
person;  and  Lord  Cottenham  further  remarked,  as  to  the  rights  of 
a  mortgage  creditor:  "  A  mortgagee  has  a  double  security.     He  has 
a  right  to  proceed  against  both,  and  to  make  the  best  he  can  of  both. 
"Why  he  should  be  deprived  of  this  right  because  the  debtor  dies,  and 
dies  insolvent,  it  is  not  very  easy  to  see."     Then  Sir  William  Page 
Wood,  speaking  in  Kellock's  Case,  supra,  of  the  decision  in  Green- 
wood  v.  Taylor,  said:  "This  court  is  not  to  depart  from   its  own 
established  practice,  and  vary  the  nature  of   the   contract  between 
mortgagor   and    mortgagee   by   analogy  to   a   rule   which  has    been 
adopted  by  a  court  having  a  peculiar  jurisdiction,  established  for 
administering  the  property  of  traders  unable  to  meet  their  engage- 
ments, which  property  that  court  found  it  proper  and  right  to  distrib- 
ute in  a  particular  manner — different  from   the  mode  in  which   it 
would  have  been  dealt  with  in  the  Court  of  Chancery.   .   .   .  We  are 
asked   to   alter   the  contract  between  the  parties   by  depriving    the 
secured  creditor  of  one  of  his  remedies,  namely,  the  right  of  stand- 
ing upon  his  securities  until  they  are  redeemed." 

In  this  country,  we  find  that  rule  more  generally  prevailing  which 
allows  the  creditor  holding  securities  to  prove  and  to  receive  his 
dividend  on  the  whole  debt.  It  is  asserted  in  Judge  Story's  work 
on  Equity  Jurisprudence  (§  521),  and  in  the  following  cases:  In  re 
Bates,  118  111.  524;  West  v.  Bank,  19  Vt.  403;  Moses  v.  Ranlet,  2 
N.  H.  488;  Findlay  v.  Hosmer,  2  Conn.  350;  Logan  v.  Anderson, 
18  B.  Monr.  114.  In  Patten's  Appeal,  45  Pa.  St.  151,  it  was  held 
in  relation  to  an  assignment  made  for  creditors  that  the  unsecure 
creditor  has  no  right  to  the  benefit  of  the  securities  held  by  another 
creditor  until  that  other's  whole  debt  was  paid.  In  Allen  /•.  Daniel 
son,  15  R.  I.  480,  which  was  a  case  arising  under  an  insolvent  assign- 


444  EIGHTS   AND   REMEDIES    OF   CREDITORS.  [CHAP.  V. 

ment,  Durfree,  C.  J.,  delivering  the  opinion  of  that  court,  said: 
"According  to  the  decided  weight  of  authority,  the  rule  is  to  allow 
all  the  creditors  to  bring  in  their  claims  in  full,  and  have  dividends 
accordingly."  That  opinion  is  both  well  considered  and  able;  and  it 
deliberately  overruled  a  prior  decision  of  the  court  in  the  case  of 
In  re  Knowles,  13  R.  I.  90.  The  learned  chief  justice  admitted  the 
error  into  which  they  had  previously  fallen,  and  remarked  that  they 
would  have  decided  the  case  differently  if  they  had  then,  as  now,  the 
same  array  of  authorities  presented,  and  that  in  adopting  the  other 
view,  not  only  the  correct  rule  would  be  established,  but  the  rule 
which  was  generally  prevalent  elsewhere. 

The  counsel  for  the  appellants  finds  decisions  by  the  courts  of 
Massachusetts,  Iowa,  and  Maryland,  which  undoubtedly  conflict  with 
the  views  we  incline  to.  But  I  think  that  whether  we  look  at  this 
question  in  the  light  of  reason  or  of  the  adjudged  cases,  the  rule 
which  best  commends  itself  to  our  judgment  is  that  which  leaves  the 
contractual  relations  of  the  debtor  and  his  creditors  unchanged  when 
insolvency  has  brought  the  general  estate  of  the  debtor  within  the 
jurisdiction  of  a  court  of  equity  for  administration  and  settlement. 
The  creditor  is  entitled  to  prove  against  the  estate  for  what  is  due  to 
him,  and  to  receive  a  dividend  upon  that  amount.  If  the  collateral 
securities  are  more  than  sufficient  to  satisfy  any  deficiency  in  the  pay- 
ment of  the  debt  from  the  dividends,  the  personal  representatives 
may  redeem  them  for  the  benefit  of  the  estate. 

Judgment  affirmed.1 


§  4.     The  Bankruptcy  of  the  Firm. 

THAYER   v.    HUMPHREY. 

Reported  supra,  p.  117. 


BROADWAY  NAT.    BANK  v.   WOOD   et  al. 

Reported  supra,  p.  129. 

i  In  re  Plummer,  1  Phillips,  56  (1841),  Cottenham,  L.  Ch.,  said :  "Now,  what  are 
the  principles  applicable  to  cases  of  this  kind?  If  a  creditor  of  a  bankrupt  holds  a 
security  on  part  of  the  bankrupt's  estate,  he  is  not  entitled  to  prove  his  debt  under  the 
commission,  without  giving  up  or  realizing  his  security.  For  the  principle  of  the 
bankrupt  laws  is,  that  all  creditors  are  to  be  put  on  an  equal  footing,  and,  therefore,  if 
a  creditor  chooses  to  prove  under  the  commission,  he  must  sell  or  surrender  whatever 
property  he  holds  belonging  to  the  bankrupt;  but,  if  he  bas  a  security  on  the  estate  of 
a  third  person,  that  principle  does  not  apply  :  he  is  in  that  case  entitled  to  prove  for 
the  whole  amount  of  his  debt,  and  also  to  realize  the  security,  provided  he  does  not 
altogether  receive  more  than  20s.  in  the  pound." 


4]  THE    BANKRUPTCY    OF    THE    FIRM. 


445 


Is  re  MARWICK. 

Davies  (U.  S.  D.  C),  229:  2  Ware,  229.     1845. 

Ware,  D.  J.  Two  questions  have  been  raised  and  argued  in  the 
present  case.  The  first  is  whether  the  creditors  of  a  partnership  can, 
in  any  case,  be  admitted  to  prove  their  claims  against  the  separate 
estate' of  one  of  the  co-partners,  for  the  purpose  of  receiving  divi- 
dends in  concurrence  with  the  separate  creditors  of  the  co-partner. 
The  second  is  whether,  admitting  that  they  may  in  some  cases,  the 
partnership  creditors  can  be  admitted  so  to  prove  under  the  facts  in 

this  case. 

The  14th  section  of  the  Bankrupt  Act  provides,  when  two  or  more 
persons  become  bankrupt  who  are  partners  in  trade,  that  separate 
and  distinct  accounts  shall  be  kept,  in  the  settlement  of  their  estates. 
of  the  joint  effects  of  the  firm  and  of  the  separate  effects  of  the  several 
partners,  and  when  the  whole  expenses  are  paid,  that  the  net  proceeds 
of  the  joint  property  shall  be  applied  to  the  payment  of  the  joint 
creditors,  and  the  separate  property  of  each  partner  shall  be  applied 
to  the  payment  of  his  separate  creditors,  and  that  the  creditors  of  the 
respective  estates  shall  be  allowed  to  receive  dividends  from  the  other 
estate  only  after  the  creditors  of  that  estate  shall  have  been  fully 
paid.  This  is  in  substance  the  rule  established  by  the  law,  and  it  is 
quite  clear,  where  there  is  both  a  joint  and  a  separate  estate,  that  the 
creditors  of  neither  can  prove  against  the  other  estate  for  the  purpose 
of  receiving  dividends,  except  from  the  surplus  remaining  after  its 
own  proper  creditors  have  been  fully  satisfied. 

This  general  rule  for  marshalling  the  assets  and  claims  is  taken 
from  the  English  bankrupt  law.  But  under  that  system  there  are 
exceptions,  as  well  established  as  the  rule  itself.  One  of  these  excep- 
tions is  where  there  is  no  joint  estate  and  no  living  solvent  partner, 
as  is  the  fact  in  the  present  case.  In  such  a  case,  the  joint  creditors 
are  allowed  to  prove  and  receive  dividends  against  the  separate 
estate,  in  concurrence  with  the  separate  creditors.  Story  on  Partn. 
§  372.  Eden  on  Bank.  172.  But  to  bring  the  case  within  the  excep- 
tion, there  must  be  absolutely  no  joint  estate.  If  there  be  any, 
however  small,  the  exception  is  not  allowed,  and  it  has  been  rejected 
where  the  joint  estate  amounted  only  to  £1  lis.  Grf.  And  again, 
there  must  be  no  living  solvent  partner  —  and  solvent  is  here  used 
not  in  its  ordinary  sense,  that  is,  the  ability  to  pay  the  whole  of 
one's  debts  —  but  in  the  sense  of  non-bankrupt  partner.  For  though 
he  may  be  in  fact  insolvent,  and  unable  to  pay  the  whole  of  his  debts, 
if  he  be  not  actually  in  legal  bankruptcy,  the  exception  is  excluded 
and  the  general  rule  prevails.  Ex  parte  Jansen,  3  Madd.  229.  The 
principle  is  that  while  there  is  any  fund,  however  small,  to  which  the 
joint  creditors  may  resort,  they  cannot  come  against  the  separate 
estate  in  competition  with  the  separate  creditors;  and  though  a  per- 


446  EIGHTS    AND   REMEDIES    OF   CREDITORS.  [CHAP.  V. 

son  may  be  insolvent,  if  he  be  not  in  actual  bankruptcy,  and  thus 
devested  of  all  his  property,  he  may  still  have  the  ability  to  pay  part 
of  his  debts,  and  this  possibility  is  held  to  be  enough  to  exclude  the 
joint  creditors  from  sharing  in  the  separate  estate  of  the  bankrupt 
partner,  except  in  the  surplus  after  the  separate  creditors  are  paid. 

Such  is  the  general  rule  under  the  English  bankrupt  laws,  and  such 
the  character  of  the  exception  to  the  rule,  which  it  is  supposed  may 
be  admitted  under  our  law.  Our  statute  has  adopted  the  general  rule, 
without  taking  notice  of  any  of  the  exceptious.  It  does  not  appear 
to  contemplate  the  case  of  there  being  no  joint  property,  and  as  it 
passes  it  by  in  silence,  it  may  be  a  grave  question,  whether  it  does 
not  leave  such  a  case  open  to  the  application  of  the  general  principles 
of  equity.  But  as  there  is  a  joint  fund  in  the  present  case,  it  is 
immaterial  whether  it  does  or  not,  unless  the  court  may  look  behind 
the  fact  of  there  being  a  joint  fund,  to  the  manner  in  which  it  has 
beeu  created. 

It  appears  from  the  proofs  in  the  case,  or  the  facts  which  are  ad- 
mitted, that  the  assignee  rendered  his  first  account  of  the  partnership 
estate  in  October,  1844,  in  which  the  whole  of  the  assets,  cousisting 
of  outstanding  demands,  are  repi'esented  as  worthless ;  that  afterwards 
he  applied  for  liberty  to  compromise  or  collect  a  debt,  on  which  he 
obtained  $40,  and  rendered  to  the  court  a  supplementary  account;  and 
it  further  appears,  that  the  money  to  take  up  this  note  was  actually 
advanced  by  Charles  E.  Marwick,  a  creditor  of  the  separate  estate. 
Now  the  argument  is  that  if  the  exception  to  the  general  rule  of 
marshalling  the  assets  and  debts,  established  under  the  English 
bankrupt  system,  may  be  admitted  under  our  statute,  then,  as  it  is 
founded  on  the  general  principles  of  equity  and  distributive  justice, 
a  creditor  of  the  separate  estate  ought  not  to  be  permitted  to  defeat 
the  equity  of  the  joint  creditor,  by  purchasing  for  a  small  sum  a  part- 
nership demand,  for  which  nothing  could  have  been  obtained  except 
for  this  purpose.  Allowing  the  premises  on  which  the  argument  is 
founded  to  be  correct,  it  does  seem  to  present  itself  with  some  force 
to  the  equitable  consideration  of  the  court.  The  effect  in  the  present 
case  will  be,  that  the  separate  creditor  will  receive  nearly  the  whole 
of  his  claim,  and  the  joint  creditors  but  a  small  percentage,  if  each  is 
restricted  to  his  own  appropriate  fund. 

But  after  considerable  reflection  I  have  come  to  the  conclusion  that, 
admitting  the  assumption  on  which  the  argument  is  founded,  it  can- 
not prevail.  In  the  first  place,  if  this  matter  is  viewed  as  a  struggle 
between  the  two  classes  of  creditors,  it  is  a  strife  on  the  part  of  the 
separate  creditors,  not  de  lucro  captando,  but  de  damno  vitando.  A 
creditor  may,  without  any  grave  imputation  in  the  forum  of  conscience, 
be  allowed  all  fair  and  legal  means  to  avoid  a  loss,  though  it  may 
incidentally  be  at  the  expense  of  another  creditor.  And  though  it 
is  a  maxim  in  equity  jurisprudence  that  equality  is  equity,  yet  the 
court  holds  the  maxim   subordinate  to  legal  priorities,    which  one 


§  4.]  THE   BANKRUPTCY   OF   THE   FIRM.  447 

party  may  by  his  diligence  acquire  over  another.  And  further,  the 
whole  subject,  of  marshalling  the  assets  and  claims  between  the  joint 
and  separate  creditors  in  bankruptcy,  involves  some  of  the  most  diffi- 
cult problems  that  occur  in  the  whole  range  of  jurisprudence.  It  has 
hitherto  been  found  impracticable  to  establish  any  general  rule  that 
will  meet  the  equities  of  all  the  various  cases  that  come  up  in  prac- 
tice; and  the  courts  have  been  finally  compelled,  instead  of  subject- 
ing the  whole  to  a  rigorous  analysis,  and  extracting  a  system  of  rules 
which  will  carry  out  the  principles  of  natural  justice,  to  cut  down  the 
difficulties  by  establishing  a  general  rule,  which  at  first  seems  con- 
formable to  general  equity,  and  then  to  limit  and  qualify  it  by  a 
number  of  arbitrary  exceptions,  in  order  to  meet  the  particular  equi- 
ties of  particular  cases.  Eden  on  Bank.  169,  174;  Story  on  Partu. 
§§  374,  382. 

This  system  is  admitted  to  be  not  entirely  satisfactory;  it  has 
sometimes  been  departed  from  and  again  restored,  and  is  now  adhered 
to,  not  because  it  is  in  all  respects  conformable  to  the  principles 
either  of  positive  law  or  of  natural  equity,  but  partly  as  a  rule  of 
convenience,  as  it  has  been  sometimes  called,  and  partly  because  no 
system  has  been  hitherto  presented  as  a  substitute,  which  is  not  found 
to  be  attended  by  equal  difficulties.  Dutton  v.  Morrison,  17  Yes. 
207  ;  Ex  parte  Elton,  3  Ves.  238. 

If,  then,  we  admit  that  the  equitable  doctrines   of   the   English 
courts,   in  the  administration  of  their  bankrupt  law,   are  applicable 
under  our  statute,  how  will  the  case  stand?     In  the  first  place,  if  this 
fund  had  been  brought  into  court  in  consequence  of  the  purchase  of 
this  note  by  any  other  person  than  a   separate  creditor,  it  is  clear 
there  would  have  been  an  end  of  the  case.     What  difference  does  it 
make  that  he  has  advanced  the  money,  and  thus  created  the  fund? 
It  was  the  duty  of  the  assignee  to  make  the  most  of  the  assets.     If, 
with  the  knowledge  that  $40  could  be  obtained  by  the  transfer  of  this 
note,  he  had  rendered  it  into  court  as  worthless,  he  might  have  been 
compelled  to  pay  the  money  out  of  his  own  pocket.     The  fund  would 
then  have  been  produced  in  this  way,  and  the  joint  creditor  would 
have   been   in  the   same  condition  he  is   now.     It  was   not  for  the 
assignee  to  inquire  who  the  purchaser  was,  or  what  were  his  motives 
in  making  the  purchase.     And  even  suppose  that  he  might  have  done 
this  and  refused  to  sell  to  a  separate  creditor  for  such  a  purpose,  the 
creditor  might  have  gone  to  the  debtor  and  furnished  him  the  money 
to  take  up  the  note,  and  thus  indirectly  obtain  the  same  result.     And 
indeed  this  seems  to  have  been  the  course  adopted   in   the  present 
case;  for  the  note  was  nominally  taken  by  one  of  the  company,  who 
was  liable  upon  it,  though  the  money  was  advanced  by  the  creditor. 
So  that  if  we  were  to  adopt  the  principle  of  going  behind  the  fact 
of  there  being  a  fund,  to  inquire  whether  that  had  not  been  inequit- 
ably created  by  the  management  of  the  separate  creditor,  the  court 
would  at  once  be  involved  in  inextricable  difficulties. 


44S  EIGHTS   AXD   REMEDIES    OF   CREDITORS.  [CHAP.  V. 

The  object  of  this  inquiry  is  to  reach  the  supposed  equity  of  the 
case,  by  making   a  more  just  and  equal  distribution  of  the  assets 
between  the  different  classes  of  creditors,  and  to  prevent  the  separate 
creditors  from  creating  out  of  worthless  assets  a  small  sum  for  the 
sole  purpose  of  preventing  the  joint  creditors  from  sharing  with  them 
the  separate  assets.     But,  after  all,  is  not  this  supposed  equity  more 
apparent  than  real?     P2ach  class   of  creditors  originally  trusted   to 
different  funds  and  different  responsibilities;  one  to  the  social  and 
one  to  the  separate  responsibility.     The  general  equity  would,  there- 
fore, seem  in  all  cases  to  confine  each  class  of  creditors  to  that  fund 
to  which  they  primarily  trusted,  unless  in  a  case  where  there  had 
been  a  fraudulent  or  improper  abstraction  from  one  estate  for  the 
purpose  of  increasing  the  other.     And  this  is  the  general  rule,  not  only 
in  bankruptcy,  but  in  general  equity.     Each  class  of  creditors  have 
a  right  of  prior  payment  out  of  the  estate  to  which  they  are  supposed 
to  have  given  credit,  and  the  other  class  can  only  go  against  the  sur- 
plus.    If  a  creditor  of  one  partner  attaches  partnership  property,  his 
attachment  only  holds  the  right  or  interest  which  the  parties  shall  be 
found  to  have  in  the  property  after  an  account  is  taken  and  the  joint 
creditors  are  paid.      13  Kent's  Com.  G4-65,  Note  c,  5th  ed;  Story's 
Partn.   §  363.     The  equity  of  each  class  of  creditors  against  then- 
proper  fund  certainly  seems  to  be  stronger  than  that  of  the  other  class 
who  never  could  have  looked  to  it  for  their  security,  except  so  far  as 
there  might  be  a  surplus  after  discharging  its  own  proper  liabilities. 

The  general  rule  therefore  has  its  foundation  in  natural  equity,  and 
it  is  established  by  the  law.  The  law  itself  makes  no  exception. 
Now,  admitting  the  case  of  there  being  no  joint  estate  to  be  a  casus 
omissus,  not  contemplated,  and  therefore  not  within  the  purview  of 
the  law,  it  certainly  covers  all  cases  where  there  is  a  joint  fund,  with- 
out inquiring  into  its  origin.  And  it  is  a  rule  in  the  construction  of 
statutes,  that  when  the  statute  covers  the  whole  case  in  all  its  circum- 
stances, and  makes  no  exception,  none  can  be  made  by  the  court. 

My  opinion,  on  the  whole,  is,  that  the  proof  cannot  be  admitted 
against  the  separate  estate,  in  competition  with  the  separate  creditors. 


AULTMAN   et  al.    v.    WILSON. 

44  N.  E.  (Ohio  St.)  1092.     1896. 

Exceptions  of  the  plaintiffs  in  error  to  the  final  account  of  the 
assignee  and  to  the  inventory  were  determined  in  the  Probate  Court 
against  the  assignee,  who  took  an  appeal  to  the  Court  of  Common 
Pleas.  The  exceptions  challenged  the  right  of  the  assignors  to  an 
allowance  in  lieu  of  a  homestead  which  had  been  made  to  them.  In  the 
Court  of  Common  Pleas  the  findings  of  fact  and  conclusions  of  law 


§  4.]  THE    BANKRUPTCY    OF   THE    FIRM.  449 

were  stated  separately  as  follows:  "  And  the  court  finds  that  the  said 
M.  A.  &  C.  S.  Landis  at  the  time  they  made  their  deed  of  assign- 
ment, November  25,  18(J0,  were  partners  and  husband  and  wife,  liv- 
ing together;  that  they  were  residents  of  the  State  of  Ohio,  and  were 
not.  nor  was  either  of  them,  the  owner  of  a  homestead;  that  they 
demanded  out  of  the  property  assigned,  which  was  partnership  prop- 
erty solely,  $500  worth  thereof  in  lieu  of  a  homestead,  and,  having 
selected  the  same,  the  appraisers  appointed  by  the  Probate  Court 
under  said  assignment,  on  making  the  appraisement,  set  the  same  off, 
and  the  same  was  thereupon,  and  before  any  exceptions  were  tiled 
to  the  inventory,  taken  into  the  possession  and  control  of  the  said 
assignors,  and  by  them  consumed  and  disposed  of;  that  on  the  .".1st 
day  of  December,  1890,  the  inventory  and  appraisement  was  filed  in 
the  Probate  Court.  Said  inventory  set  out  the  specific  articles,  and 
their  value,  which,  at  the  request  of  the  assignors  as  husband  and 
wife,  the  appraisers  had  so  set  off  to  them,  and  stated  that  the  same 
had  been  so  set  off.  At  the  time  said  property  was  so  set  off  to 
the  assignors  in  lieu  of  a  homestead,  the  assignee  took  counsel  of  a 
reputable  member  of  the  bar  of  Columbiana  County,  learned  in  the 
law,  who  was  at  the  same  time  the  attorney  for  said  assignors,  who 
advised  him  that  under  the  law  of  Ohio  the  assignors  were  entitled  to 
the  property  so  set  off,  and  about  the  same  time  the  attorney  for  one 
of  the  creditors  said  to  the  assignee  that  the  assignors  were  not  entitled 
to  such  exemption.  The  final  account  of  the  assignee  was  filed  in  the 
Probate  Court  July  30,  1891.  The  first  exceptions  to  the  inventory 
were  filed  September  16,  1891.  On  consideration  of  the  above-recited 
facts  the  court  finds,  as  its  conclusions  of  law  thereon,  that  the  goods 
so  set  off  to  said  assignors  in  lieu  of  a  homestead  ought  not  to  have 
been  so  set  off  to  them,  that  they  were  not  entitled  to  them  out  of  the 
partnership  property,  that  the  assignee  should  be  charged  with  the 
amount  thereof,  and  that  the  same,  to  wit,  the  sum  of  $500,  should, 
and  the  same  is  hereby  ordered  to  be,  added  to  the  amount  herein- 
before found  as  chargeable  against  said  assignee;  to  which  finding 
and  conclusion  of  law  charging  said  assignee  with  said  amount  so  set 
off  to  the  assignors  in  lieu  of  a  homestead  the  said  assignee  excepts." 
On  petition  in  error  the  Circuit  Court  found  that  the  Court  of  Common 
Pleas  erred  in  its  conclusion  of  law  from  the  facts  found,  reversed  its 
judgment,  and  rendered  a  final  judgment  in  favor  of  the  assignee 
upon  the  facts  so  found.  This  petition  in  error  is  prosecuted  for  the 
reversal  of  the  judgment  of  the  Circuit  Court  and  the  affirmance  of 
that  of  the  Common  Pleas. 

W.  If.  Spence  and  A.  H.  Clark,  for  plaintiffs  in  error. 

H.  R.  Hill  and  Billingsb-y,  Taylor,  &  Clark,  for  defendant  in  error. 

Siiauck,  J.  However  conflicting  the  decisions  elsewhere  may  be, 
it  is  settled  in  this  State  that  "the  members  of  an  insolvent  firm  are 
not  entitled  to  the  statutory  exemptions  out  of  partnership  property 
after  it  has  been  seized  in  execution  by  partnership  creditors,  not- 

29 


450  EIGHTS   AND   REMEDIES    OF    CREDITORS.  [CHAP.  V. 

withstanding  all  the  members  join  in  demanding  the  exemptions." 
Gaylord  v.  Imhoff,  26  Ohio  St.  317.  And  it  is  manifest  that  the 
vesting  of  the  partnership  property  in  an  assignee  for  the  benefit  of 
creditors  is  the  legal  equivalent  of  its  seizure  in  execution.  It  is 
said,  however,  that  a  different  rule  should  apply  here,  because  the 
relation  of  husband  and  wife  existed  between  the  members  of  the 
insolvent  firm,  the  ownership  of  the  property  and  the  right  to  demand 
the  exemption  being  alike  joint.  Section  5441,  Rev.  St.  provides 
that  "  husband  and  wife  living  together,  a  widower  living  with  an 
unmarried  daughter  or  minor  son,  every  widow  and  every  unmarried 
female  having  in  good  faith  the  care,  maintenance,  and  custody  of 
any  minor  child  or  children  of  a  deceased  relative,  residents  of  Ohio, 
and  not  the  owner  of  a  homestead,  may  in  lieu  thereof  hold  exempt 
from  levy  and  sale  real  or  personal  property  to  be  selected  by  such 
person,"  etc.  Husband  and  wife  living  together,  by  the  terms  of 
this  section,  constitute  a  family,  for  whose  benefit  the  exemption  is 
allowed,  as  do  widowers,  widows,  and  unmarried  women,  under  the 
conditions  named.  But  there  is  no  reason  to  suppose  that  the  gen- 
eral assembly  was  undertaking  to  impart  a  joint  character  to  the 
right.  Although  a  husband  lives  with  his  wife,  he  is  the  person  upon 
whom  is  conferred  the  right  of  selection.  The  allowance  provided  for 
in  this  section  is  in  lieu  of  the  family  homestead,  which  may  be  held 
exempt  from  sale  under  the  provisions  of  section  5435,  Rev.  St.  where 
husband  and  wife,  living  together,  are  also  constituted  a  family  for 
whose  use  the  exemption  is  made;  yet  the  right  to  demand  it  is 
primarily  that  of  the  husband  alone,  the  wife  haviug  no  right  to  make 
the  demand  unless  the  husband  fail  or  refuse  to  make  it.  Nor  is 
there  anything  in  the  legislation  upon  this  subject  showing  an  inten- 
tion on  the  part  of  the  general  assembly  to  change  the  settled  and 
familiar  rule  that  homestead  rights  attach  only  to  the  individual 
property  of  the  debtor,  and  that  partnership  property  must,  to  the 
extent  necessary,  be  devoted  to  the  payment  of  partnership  debts. 
The  facts  found  by  the  trial  court  show  that,  when  the  goods  were 
set  off  to  the  assignors  upon  their  demand,  their  right  to  the  exemp- 
tion was  denied  by  counsel  representing  some  of  the  creditors  of  the 
firm.  In  that  situation  it  was  the  duty  .of  the  assignee  to  hold  the 
property  subject  to  the  order  of  the  Probate  Court,  which  alone  had 
original  jurisdiction  to  determine  the  question  of  their  right.  In 
delivering  the  property  without  such  order  he  acted  at  his  peril,  and 
the  advice  of  counsel  will  not  shield  him  from  the  consequences  of  a 
mistaken  course-. 

Judgment  of  the  Circuit  Court  reversed,  and  that  of  the  Common 
Pleas  affirmed. 


£  4.]  THE   BANKRUPTCY   OF   A   PARTNER  451 

GREEN  et  al.    v.    TAYLOR  et  al. 
Reported  supra,  p.  113. 


§  4.    The  Bankruptcy  of  a  Partner. 

ANONYMOUS. 

3  Salk.  61.     1696. 

Two  joint  traders ;  one  of  them  became  a  bankrupt.  Per  Holt, 
Ch.  J.  The  commissioners  cannot  meddle  with  the  interest  of  the 
other,  for  it  is  not  affected  by  the  bankruptcy  of  his  companion. 


MURRAY  v.  MURRAY"   et  al. 
5  Johns.  Ch.  60.     1821. 

Tiie  firm  of  Robert  Murray  &  Co.,  composed  of  the  plaintiff,  of 
Robert  Murray,  G.  W.  Murray,  and  John  R.  Wheaton,  failed  in  1796,  at 
which  time  plaintiff  was  in  England  on  the  business  of  the  firm.  G.  W. 
Murray  and  Wheaton  went  to  Europe.  In  1798,  Robert  Murray,  by 
virtue  of  a  power  of  attorney  from  his  co-partners  to  him  for  the  pur- 
pose, made  assignments  of  the  firm  property  to  J.  B.  Murray  and  J.  I. 
Clark  in  trust  for  particular  creditors.  The  bill  in  this  action  charged 
that  these  trustees,  after  paying  the  particular  creditors,  had  in  their 
hands  a  balance  belonging  to  the  firm.  All  of  the  firm,  except  the 
plaintiff,  became  bankrupts  under  the  bankrupt  law  of  the  United 
States  of  June,  1800.    The  other  important  facts  appear  in  the  opinion. 

Wells  and  T.  A.  Emmett,  for  the  plaintiff. 

S.  Jones  and  D.  B.  Or/den,  for  the  defendants. 

Kent,  Cn.  The  question  in  this  case,  between  the  plaintiff  and  the 
assignees  of  his  bankrupt  partner,  relates  to  the  control  and  distribu- 
tion of  the  partnership  fund.  The  plaintiff,  in  a  particular  manner, 
claims  the  balance  reported  to  be  due  from  the  estate  of  John  I.  Clark, 
deceased,  to  the  house  of  Robert  Murray  &  Co.,  and  insists  that  he  is 
entitled,  in  preference  to  the  assignees,  to  distribute  that  balance,  and 
to  disregard  the  settlement  which  was  made  by  those  assignees  with 
the  executor  of  Clark. 

The  defendant,  John  B.  Murray,  and  John  I.  Clark  were  trustees  to 
a  large  amount,  under  assignments  from  the  house  of  Robert  Murray  & 
Co.,  and  though  the  bill  seeks  to  call  both  those  trustees  to  account, 
and  to  claim  the  balance  due  from  each  of  them,  yet  the  plaintiff's 
counsel,  upon   the  argument,  did  not  seem  to  press,  very  seriously, 


452  EIGHTS   AND    REMEDIES    OF   CREDITORS.  [CHAP.  V. 


his  claim  against  John  B.  Murray,  who  had  already  accounted  and  set- 
tled with  his  assignees.  The  account  of  J.  B.  Murray  was  taken 
and  stated,  with  the  assent  of  the  plaintiff  ;  and  we  will  now  examine 
whether  the  plaintiff  be  not  now  concluded  in  respect  to  his  claim 
against  J.  B.  Murray. 

The  earliest  commission  of  bankruptcy  was  taken  out  against  Robert 
Murray,  and  his  property  was  assigned  under  the  Bankrupt  Act,  on  the 
2d  of  July,  1801  ;  and  on  the  8th  of  September,  1801,  the  present 
defendants,  Riggs,  Ward,  and  M'Evers,  as  his  assignees,  filed  their  bill 
to  call  Clark  and  J.  B.  Murray  to  account  for  the  partnership  property, 
and  all  the  partners  of  the  house  of  Robert  Murray  &  Co.,  including 
the  present  plaintiff,  were  made  parties  to  the  bill.  The  bill  prayed 
that  those  two  trustees  might  be  decreed  to  pay  over  to  them  the 
partnership  effects  in  their  hands,  in  order  that  they  might  pay  the 
partnership  debts.  The  partnership  debts  were  alleged  to  amount 
to  upwards  of  $700,000,  and  the  private  property  of  Robert  Murray, 
exclusive  of  his  share  of  the  partnership  property,  was  stated  to 
be  very  inconsiderable.  To  this  bill  a  demurrer  was  filed  by  the 
present  plaintiff,  on  the  ground  that  the  funds  of  the  house  of  Robert 
Murray  &  Co.,  held  by  J.  B.  Murray  and  Clark,  ought  not  to  be  paid 
to  the  assignees.  This  demurrer  was  filed  on  the  5th  of  March,  1805, 
and  it  raised  the  very  question  now  under  discussion  in  this  suit, 
(After  holding  that  the  decree  in  that  action  could  not  be  impeached  in 
this  action,  the  chancellor  continued:)  The  plaintiff's  claim  against 
the  executors  of  Clark  is  not  resisted  upon  the  same  ground  ;  for  here 
the  plaintiff  was  no  party  to  any  of  the  rules  or  orders,  under  which  the 
suit  of  the  assignees  against  the  executors,  in  respect  to  the  partner- 
ship moneys,  chargeable  upon  the  estate  of  Clark,  was  finally  and 
amicably  settled.  And  here  the  general  question  occurs,  whether  the 
assignees  of  the  bankrupt  partners  had  not  competent  power  to  receive 
partnership  funds,  and  discharge  partnership  debtors,  even  without  the 
assent  of  the  remaining  solvent  partner.  If  this  point  should  be 
decided  in  the  affirmative,  it  would  equally  protect  the  defendant,  J.  B. 
Murray,  in  his  settlement  with  the  assignees,  without  having  recourse 
to  the  plaintiff's  assent,  or  the  decision  in  the  other  suit. 

It  is  admitted,  in  all  the  cases,  that  the  assignees  of  a  bankrupt 
partner,  and  the  remaining  solvent  partner,  are  tenants  in  common  in 
respect  to  the  partnership  funds  ;  and,  like  all  tenants  in  common,  one 
party  cannot  call  the  joint  property  out  of  the  hands  of  the  other. 
There  is  no  such  case.  They  are  entitled  equally  to  the  possession  in 
law.  This  was  expressly  held  in  Smith  v.  Stokes,  1  East,  363.  Trover 
will  not  lie  for  one  against  the  other.  It  has,  also,  been  held,  that  the 
solvent  partner  and  the  assignees  of  the  bankrupt  cannot  sue  alone, 
and  that  they  must  unite  in  actions  at  law.  Ashurst,  J.,  in  Graham  v. 
Robertson,  2  Term,  282  ;  Eckhardt  v.  Wilson,  8  Term,  140.  What 
right,  then,  has  the  solvent  partner  to  come  into  this  court,  to  call  the 
entire  joint  funds  out  of  the  possession  of  the  assignees,  who  are  his 


§  4.]  THE   BANKRUPTCY   OF   A   PARTNER.  453 

co-tenants  in  common,  and,  as  such,  have  an  equal  control  over  the 
joint  fund?  There  is  no  case  giving  to  either  part}'  the  absolute, 
exclusive  possession  and  distribution  of  the  entire  effects.  Neither 
party  is  strictly  entitled,  as  against  the  other,  to  anything  more  than 
his  share  of  the  surplus,  after  the  partnership  debts  are  paid.  Field 
v.  Taylor,  4  Vesey,  396. 

In  this  case,  there  is  no  justice  or  equity  in  the  pretension  of  the 
plaintiff.  He  admits  that  the  partnership  debts  greatly  exceed  the 
partnership  funds,  and  that  there  cannot  be  an}'  surplus  coming  to 
either  party.  His  sole  object,  then,  is,  to  have  the  partnership  funds, 
which  have  been  or  may  be  under  the  control  of  the  assignees,  pass 
into  his  hands  for  distribution,  instead  of  having  them  distributed  by 
the  assignees  ;  and  he  denies  all  right  in  the  assignees  to  touch  or  dis- 
tribute any  of  the  partnership  funds,  and  wishes  to  vacate  all  that  they 
have  done.  But  it  appears  that  a  great  majority,  in  interest  of  the 
joint  creditors,  and  who  have  partnership  debts  due  them  to  nearly 
8500,000,  have  come  in  and  proved  their  debts  under  the  separate 
commission  in  the  case  of  Robert  Murray.  These  include  almost  all 
the  debts,  except  such  as  were  provided  for  under  the  assignments,  to 
J.  B.  Murray  and  Clark.  It  also  appears  that  the  assignees,  after 
having  by  suit  obtained  a  liquidation  of  the  balance  due  from  the 
estate  of  Clark,  and  bestowed  great  care  and  efforts  towards  the 
recovery  and  security  of  that  debt,  settled  it  upon  terms  which  they 
deemed  prudent  and  just,  under  all  the  circumstances.  This  settle- 
ment and  consequent  discharge  of  the  estate  of  Clark  was  in  February, 
1810;  and  in  October  following,  due  public  notice  having  been  given 
to  the  creditors,  several  of  them  appeared  before  the  commissioners  of 
bankrupts  and  ratified  that  settlement.  If  there  was  anything  wrong 
in  the  settlement,  it  was  for  the  creditors  to  disturb  it ;  and  it  would 
be  most  unreasonable  to  permit  the  plaintiff  to  set  aside  all  that  had 
been  done  by  the  assignees  under  such  a  sanction  from  the  creditors, 
merely  for  the  purpose  of  making  his  own  distribution.  There  is  no 
charge  of  misconduct  in  the  assignees.  The  whole  bill  is  a  denial  of 
competency  to  act,  though  ever}'  case  on  the  subject  admits  that 
assignees  of  a  bankrupt  partner  are  tenants  in  common  with  the  solvent 
partner.  If  the  pretensions  of  either  party  to  an  exclusive  distribution 
of  the  partnership  funds,  were  to  be  examined  upon  principles  of 
policy  and  equity,  the  assignees  would  have  the  better  pretension,  in 
the  view  of  this  court,  because  the  solvent  partner  has  it  in  his  power 
to  give  preference,  and  defeat  the  equality  and  equity  of  the  bankrupt 
system.  Assignees,  on  the  other  hand,  are  bound  to  make  a  ratable 
distribution  of  the  assets  ;  and,  being  trustees  under  the  control  of  this 
court,  there  is  no  good  reason  why  their  equal  rights  at  law  as  tenants 
in  common  should  suffer  diminution  here.  They  are  tenants  in  com- 
mon, but  with  particular  equities  in  them,  as  Lord  Eldon  observed, 
••Vastly  beyond  what  tenants  in  common  have  where  no  bankruptcy 
has  occurred  ;  "    and  their  claim  to  the  distribution  of  the  partnership 


454  EIGHTS   AND   REMEDIES    OF   CREDITORS.  [CHAP.  V. 

fund  has  been  encouraged  and  strengthened  by  the  decisions  in  chan- 
cer}\  This  will  appear  by  a  review  of  some  of  the  leading  chancery 
cases. 

It  was  well  established  in  the  time  of  Lord  Hardwicke,  that  joint 
creditors  could  come  in  and  prove  their  debts  under  a  separate  com- 
mission of  bankruptcy,  against  one  partner,  for  the  purpose  of  assent- 
ing to,  or  dissenting  from,  the  certificate  of  discharge  to  the  bankrupt. 
They  were  not  allowed  to  come  in  and  prove,  for  the  purpose  of  receiv- 
ing dividends  with  the  separate  creditors  ;  and  they  were  put  to  the 
necessit}'  of  filing  a  bill,  and  bringing  before  the  court  the  assignees  of 
the  bankrupt  and  the  solvent  partners,  and  having  the  account  of  the 
joint  estate  taken  in  their  presence.  The  principle  was,  that  the  joint 
creditors  had  a  preferable  claim  upon  the  joint  effects,  and  the  separate 
creditors  upon  the  separate  estate ;  and,  therefore,  the  joint  creditors 
could  not  come  in  upon  the  separate  estate  until  all  the  separate  cred- 
itors were  paid  ;  and  this  was  upon  a  plain  rule  of  equit}',  that  he  who 
has  two  funds  to  resort  to,  shall  not  satisfy  his  debt  out  of  that  one  of 
them  to  which  another  creditor  can  only  resort,  until  he  has  exhausted 
the  other  fund. 

This  more  ancient  doctrine  recognized,  of  course,  the  equal  right  of 
the  assignees  to  the  distribution  of  the  joint  fund,  and  the  right  of  the 
joint  creditors  to  come  in  under  the  cover  of  the  separate  commission. 
It  onhy  interfered  with  the  application  of  the  joint  fund,  bj'  marshal- 
ling the  joint  and  separate  assets  equitably  among  the  joint  and  sepa- 
rate creditors.  Indeed  the  right  of  a  joint  creditor  to  come  in  and 
prove  his  debt  and  take  his  dividend,  under  a  separate  commission,  is 
a  clear  legal  right ;  for  a  joint  creditor  is  still  a  creditor  of  the  bank- 
rupt, and  all  the  control  that  equity  exercises  over  this  right  is  merelj' 
to  marshal  the  funds  upon  equitable  principles. 

There  is  nothing,  even  upon  the  ancient  doctrine  in  chanceiy,  that 
gives  to  the  solvent  partner  any  paramount  right  over  his  co-tenants, 
the  assignees,  and  especially,  a  right  to  annul  their  acts  and  call  them  to 
an  account  for  all  the  joint  funds  in  their  possession.  It  was  determined, 
in  the  case  Ex  parte  1  Atk.  133  ;  Willes,  67,  both  by  Lord  Hardwicke 
and  by  the  Court  of  King's  Bench,  that  a  separate  commission  of 
bankruptcy  might  issue  against  one  partner  for  a  joint  debt,  upon  the 
petition  of  a  joint  creditor.  And  the  chief  justice  of  the  Common  Pleas, 
in  giving  the  opinion  of  the  court,  said,  that  under  a  separate  commis- 
sion against  one  partner  the  bankrupt's  share  of  the  partnership  effects 
might  be  taken  and  sold,  making  satisfaction  for  the  partnership  debts, 
if  joint  creditors  elected  to  come  in  under  the  separate  commission,  "  as 
they  generally  have."  The  certificate,  under  the  separate  commission, 
was  a  discharge  from  the  partnership,  as  well  as  the  separate  debts, 
because  the  partnership  creditors  might  come  in  and  prove  their  debts. 
This  decision  considered  a  commission  as  an  execution,  and  hot  as  an 
action;  but  Lord  Eldon,  in  Ex  parte  Brown  and  Ex  parte  Munton,  1 
Ves.  &  Bea.  60,  admitted  there  was  a  difficulty  in  considering  a  com- 


§  4.]  THE    BANKRUPTCY   OF   A   PARTNER.  455 

mission  of  the  bankruptcy  as  an  execution,  in  a  strict  sense  ;  and  that 
there  was  a  difficulty  also  in  respect  of  the  other  partners,  in  allowing 
a  separate  commission  to  issue  upon  a  joint  debt. 

Lord  Thurlow,  after  much  consideration  and  consultation  with  the 
judges,  adopted  a  different  course  on  this  subject,  and  allowed  the  joint 
creditors  not  only  to  come  in  under  a  separate  commission  and  prove 
their  debts,  but,  as  a  matter  of  rigid,  to  take  dividends  upon  the  sep- 
arate estate ;  and  he  held  a  commission  of  bankruptcy  to  be  an  execu- 
tion for  all  creditors. 

Lord  Loughborough  again  departed  from  the  rule  adopted  by  Lord 
Thurlow.  and  restored  the  principle,  though  not  the  entire  practice,  of 
Lord  Hardwicke.  He  directed  the  assignees  under  a  separate  commis- 
sion, to  take  an  account  of  the  joint  estate,  aud  applying  that  to  the 
discharge  of  the  joint  creditors,  to  ascertain  the  shares  belonging  to 
the  residue  of  the  bankrupt  and  to  the  solvent  partners.  He  adopted 
the  reasonable  practice  of  marshalling  the  dividends,  and  compel- 
ling the  joint  creditor  to  exhaust  the  joint  fund,  before  he  exercised 
the  legal  right  of  proving  his  debt,  and  taking  his  dividends  out  of  the 
separate  fund.  The  case  JSx parte  Elton,  3  Vesey,  238,  contains,  at 
large,  the  able  discussion  and  lucid  principles  of  Lord  Loughborough. 
He  allowed  the  partnership  creditor  to  prove  his  debt  under  the  sepa- 
rate commission,  and  that  his  dividend  should  be  set  apart,  and  allotted 
to  him  out  of  the  separate  fund,  but  not  paid  until  an  account  had  been 
previously  taken  of  the  joint  fund,  and  it  had  been  ascertained  how  far 
this  debt  could  be  satisfied  out  of  it.  He  said  that  the  joint  creditor 
ought  to  be  admitted  to  prove  his  debt  under  a  separate  commission, 
for  the  purpose  of  assenting  to,  or  dissenting  from,  the  certificate,  and 
for  receiving  such  surplus,  beyond  the  amount  of  separate  debts,  as 
joint  creditors  would  be  entitled  to,  if  there  were  two  commissions. 
The  court  ought  not  to  allow  a  joint  creditor,  who  has  two  funds,  to 
attach  himself  upon  one  fund,  to  the  prejudice  of  those  who  have  no 
other,  and  to  neglect  the  other  fund.  A  separate  creditor  cannot  take 
a  dividend  upon  a  joint  estate,  ratable  with  the  joint  creditors,  for  at 
law  he  can  onby  attach  the  interest  of  his  debtor  in  that  property.  It 
is  a  settled  rule  in  equity,  that  the  joint  estatp  was  to  be  first  applied  to 
partnership  debts,  and  the  separate  estate  to  the  separate  debts,  and  if 
the  joint  creditor  was  admitted,  by  an  order  in  bankruptcy,  to  receive 
a  dividend  from  the  separate  estate,  the  order,  as  he  observed,  would 
carry  a  chancery  suit  in  the  bosom  of  it.  The  assignees  would  be  com- 
pelled to  file  a  bill  on  behalf  of  the  separate  creditors,  in  order  to  re- 
strain the  dividend  and  compel  a  contribution  from  the  other  parties 
and  to  make  them  discover  and  apply  the  partnership  fund,  in  order  to 
throw  the  joint  creditors  upon  it,  and  prevent  the  separate  estate  from 
being  exhausted.  The  plain  rule  of  distribution  is,  that  each  estate 
shall  bear  its  own  debts,  and  the  usual  directions  in  bankruptcy  are  to 
apply  the  funds  distributively,  the  joint  estate  to  the  joint  debts,  the 
separate  estate  to  the  separate  debts,  and  the  surplus  of  each  to  come 


456  EIGHTS    AND   EEMEDIES    OF    CREDITORS.  [CHAP.  V. 

in  reciprocally  to  the  creditors  remaining  upon  the  other.  The  Lord 
Chancellor,  accordingly,  in  that  case,  and  in  pursuance  of  this  reasoning, 
admitted  the  joint  creditor  to  prove,  but  not  to  receive,  a  dividend. 
He  directed  that  to  be  reserved,  until  an  account  should  be  taken  of 
what  the  joint  creditors  might  receive  from  the  partnership  effects. 
The  same  rule  and  practice  was  followed  in  Ex  parte  Abell,  4  Vesey, 
837.  The  joint  creditors  were  not  allowed  to  take  a  dividend  under 
the  separate  commission,  until  the  same  creditors  were  paid. 

Lord  Eldon  pursued  the  rule  and  practice  of  his  immediate  prede- 
cessor, Lord  Loughborough,  without  presuming  to  say  which  was  the 
best  rule,  that  or  the  one  of  Lord  Thurlow.  In  the  case  Ex  parte  Clay, 
6  Ves.  813,  and  in  two  cases  cited  in  a  note  to  that  case,  Lord  Eldon 
admitted  the  joint  creditor  to  prove,  for  the  purpose  of  keeping  sepa- 
rate accounts,  and  assenting  to,  or  dissenting  from,  the  certificate,  but 
not  to  receive  the  dividends,  in  the  first  instance,  with  the  separate 
creditors.  In  Ex  parte  Chandler,  9  Ves.  35,  a  separate  commission 
was  sued  out  on  the  petition  of  a  joint  creditor,  and  the  first  creditors 
were  permitted  to  prove,  for  the  purpose  of  voting  for  assignees  and 
taking  dividends,  provided  they  would  pay  the  separate  creditors. 

The  doctrine  afterwards  laid  down  in  Barker  v.  Goodair,  11  Ves. 
78,  is  quite  decisive  upon  the  question  in  this  case,  because  it  not  only, 
like  every  case  on  the  subject,  admits  the  equal  right  of  the  assignees, 
as  tenants  in  common,  to  the  joint  fund,  but  it  gives  to  the  assignees 
higher  equities  than  belong  to  the  ordinary  tenants  in  common.  Being 
exposed  to  the  claims  of  the  joint  and  separate  creditors,  they  have  an 
equity  which  the  solvent  partner  has  not ;  that  is,  to  compel  a  contri- 
bution from  the  joint  fund.  Sir  S.  Romilly,  in  that  case,  observed, 
arguendo,  that  the  assignees,  as  against  the  solvent  partner,  had  a 
lien  upon  the  whole  property,  until  all  the  accounts  were  wound  up, 
notwithstanding  the  tenancy  in  common.  The  Lord  Chancellor  said, 
that  the}'  had  equities  beyond  what  mere  tenants  in  common  had,  and, 
in  the  absence  of  the  solvent  partner,  the}-  could  take  the  joint  prop- 
erty,  and  pa}T  all  the  joint  creditors  equally,  and  apply  the  surplus 
under  all  the  equities  subsisting  between  the  partners.  This,  he  said, 
was  done  every  da}\  Lord  Keiryon,  in  Smith  v.  Stokes,  1  East,  369, 
had  already  stated  another  case,  in  which  the  assignees  of  a  bankrupt 
partner  were  to  take  the  whole  propertj-  and  sell  it,  and  account  to  the 
solvent  partner  for  his  share.  This  was  where  the  property  was  left  in 
the  possession  of  the  bankrupt  partner  at  the  time  of  his  bankruptcj-. 

The  rule  which  Lord  Eldon  declared  to  be  settled  in  Ex  parte 
Martin,  15  Ves.  114,  and  Ex  parte  Crew,  16  Ves.  236  ;  and  see  475, 
476,  goes  sti-ongfy  to  show,  that  assignees  under  a  separate  commission 
can  now  distribute  the  whole  partnership  fund,  for  after  a  separate  com- 
mission, a  joint  commission  cannot  issue  nor,  on  the  other  hand,  can  a 
separate  commission  issue  after  a  joint  commission.  Joint  and  sepa- 
rate commissions  cannot  stand  together,  as  they  were  permitted  to  do 
in  the  time  of  Lord  Hardwicke.     Now,  by  arrangement  one  or  the 


§  4.]  THE   BANKRUPTCY   OF   A   PARTNER.  457 

other  is  superseded,  as  rnay  best  answer  the  ends  of  justice.  If  the 
separate  commission  first  issued,  or  by  the  arrangement  was  permitted 
to  stand,  even  if  there  was  a  joint  commission,  it  would  seem  neces- 
sarily to  follow  that  it  must  draw  to  it  the  distribution  of  the  whole 
joint  fund,  after  it  had  been  marshalled  upon  the  principles  prevailing 
in  equity. 

It  is  said  again,  in  the  case  Ex  parte  Taitt,  1G  Ves.  193,  that  Lord 
Loughborough  repeatedly  made  the  order  which  Lord  Eldon  has  fol- 
lowed, that  the  account  of  the  joint  estate  should  be  taken  under  the 
separate    commission,    and   that   the   assignees   should    keep    distinct 
accounts,  and  distribute  the  joint  estate  among  the  joint  creditors,  and 
the  separate  estate  among  the  separate   creditors.     But  the  difficulty 
was,  that  the  account  was  taken  in  the  absence  of  the  other  parties, 
and  though  Lord  Eldon  continued  to  follow  the  practice  established 
by   Lord  Loughborough,   yet  he  was  evidently  not  satisfied  with  it; 
and  I  should  rather  apprehend  that  he  preferred   the    rule    of  Lord 
Thurlow,  allowing  the  joint  creditors  to  come  in  fully  and  take  their 
ratable  dividends,   and  leave   it  to  the  assignee  to  bring  the  solvent 
partner  into  chancery,  and  have  the  account  of  the  joint  estate  taken 
in  his  presence,  and  contribution  decreed.     He  observed  afterwards, 
in  Dutton  v.  Morrison,  17  Ves.  191,  and  see  also  Ex  parte  Carlson,  18 
Ves.  439,  that  he  had  continued  to  follow  the  practice  of  his  predeces- 
sor, and  under  a  separate  commission,  where  the  other  partners  were 
solvent,  he  had  directed  an  account  of  the  joint  estate  to  be  taken,  in 
the  absence  even  of  the  other  partners  ;  and  upon  the  application  of 
any  one  joint  creditor,  the  order  was,  that  the  joint  creditors  were  to 
be  paid  pari  passu,  out  of  the  joint  estate,  and  the  residue  to  be  dis- 
tributed according  to  the  respective  interests  of  the  partners.     They 
were  likewise  entitled  to  their  ratable  proportions,  if  requisite  to  satisfy 
their  debts,  of  the  surplus  of  the  separate  estate. 

Upon  this  review  of  the  cases,  I  am  not  able  to  perceive  any  color- 
able reason  for  the  pretension  set  up  by  the  plaintiff,  to  the  exclusive 
distribution  of  the  partnership  funds.  There  would  be  much  more 
ground,  upon  the  established  doctrines  of  equity,  for  an  exclusive  right 
of  distribution  on  the  part  of  the  assignees,  since  under  their  commis- 
sion the  court  is  in  the  practice  of  directing  an  account  of  the  joint 
estate  to  be  taken,  and  a  distribution  of  that  estate  ratably  among  the 
joint  creditors.  The  most  that  can  be  said  is,  that  the  solvent  partner 
upon  the  dissolution  of  the  partnership  by  bankruptcy,  being  a  tenant 
in  common,  may  retain  and  distribute  the  funds  in  his  possession,  and 
may,  as  was  held  in  Fox  v.  Hanbury,  Cowp.  445,  sell  those  partner- 
ship effects,  for  a  valuable  consideration  and  without  fraud.  They 
cannot  be  called  out  of  his  possession  by  his  co-tenants,  the  assignees, 
unless  under  the  direction  of  this  court,  on  a  bill  filed  by  them  for  con- 
tribution, or,  perhaps,  where  an  account  of  the  joint  fund  is  directed 
to  be  taken  in  bankruptcy.  But  on  the  other  hand,  there  is  no  founda- 
tion in  law  or  equity  for  the  solvent  partner  to  call  to  account  either 


458  EIGHTS   AND   REMEDIES    OF   CREDITORS.  [CHAP.  V. 

the  partnership  debtors  who  have  bona  fide  settled  with  the  assignees, 
or  the  assignees  themselves,  for  the  funds  in  their  possession.  They 
hold  those  funds  by  an  equal  title  in  law,  with  him,  as  tenants  in  com- 
mon, and  b\T  a  superior  equitable  title,  as  trustees,  charged  with  the 
payment  of  both  the  joint  and  separate  debts. 

I  shall  accordingly  declare  that  the  plaintiff  has  no  right  or  title,  in 
law  or  equit}*,  to  call  the  assignees  to  account  for  the  partnership  funds 
which  have  been  or  are  now  in  their  possession  as  such  assignees,  in 
order  to  obtain  by  decree  the  possession  of  those  funds  for  distribution 
among  the  creditors  of  Robert  Murray  &  Co.,  inasmuch  as  those 
assignees  have  an  equal  right  and  title  in  law,  as  tenants  in  common 
with  the  plaintiff,  and  a  better  right  in  equity  to  the  possession  of 
those  funds  for  the  same  purpose  of  distribution.  And  further,  that 
the  plaintiff  has  no  right  to  annul  or  set  aside  the  settlements  made  by 
the  defendant  John  B.  Murray,  as  one  of  the  debtors  of  the  house  of 
Robert  Murraj"  &  Co.,  with  the  said  assignees,  and  by  the  defendants 
Oliver  Kane  and  Ephraim  Bowen,  Jr.,  as  executors  of  John  Innis 
Clark,  deceased,  also  one  of  the  debtors  to  the  house  of  Robert  Murray 
&  Co.,  with  the  said  assignees,  in  order  to  obtain  possession  of  what 
was  due  from  those  debtors  respectively,  for  the  purpose  of  distribu- 
tion, inasmuch  as  those  assignees  had  competent  power  to  make  those 
settlements,  and  to  obtain  possession  of  what  was  due  and  coming 
upon  those  settlements,  for  the  like  purpose  of  distribution.  And  I 
shall  direct  the  original  bill,  and  bill  of  revivor  and  supplement,  to  be 
dismissed,  but  without  costs,  considering  the  special  circumstances  of 
the  case,  and  the  importance  of  the  points  investigated  and  discussed. 

Decree  accordingly. 


FORSAITH  v.  MERRITT  et  al. 

1  Lowell  (U.  S.  Dist.  Ct.),  336.     1869. 

Bill  in  equity  by  the  assignee  of  Charles  A.  Church,  alleging  that 
said  Church  and  Amos  M.  Farnum,  both  now  of  Boston,  were  co- 
partners doing  business  in  Chicago  from  December,  1867,  to  June, 
18G8  ;  that  on  the  fourth  day  of  the  latter  month  they  were  insolvent 
and  dissolved  their  partnership,  and  on  the  same  day  made  a  convey- 
ance of  nearly  all  their  joint  personal  property  to  the  defendants, 
George  and  John  Merritt,  who  were  creditors  of  the  firm,  and  had 
reasonable  cause  to  believe  them  insolvent ;  that  within  four  months 
afterwards  the  said  Church  was  declared  a  bankrupt  in  this  district, 
upon  his  own  petition,  and  the  complainant  has  been  duly  appointed 
assignee  of  his  estate.  The  bill  made  the  former  partner,  Farnum,  a 
defendant,  and  prayed  for  an  account  of  the  partnership  dealings,  and 
that  the  conveyance  may  be  set  aside.  The  defendants  severally 
demurred  to  the   bill. 


§  4.]  THE    BANKRUPTCY    OF   A    PARTNER.  459 

IT.  A.  Herrkl-  <0  W.  J.  Forsaith,  for  the  plaintiffs. 

H.  A.  Clajyp,  for  the  defendant. 

Lowell,  J.  This  is  a  case  of  new  impression.  The  plaintiff,  who  is 
the  assignee  of  one  partner,  seeks  to  set  aside  a  preference  given  by 
both  to  a  joint  creditor.  There  is  a  suggestion  of  Mr.  Justice  Story 
that  in  some  cases  the  court  ma}-  require  the  partner  who  is  not  in 
bankruptcy  to  deliver  up  the  joint  assets,  Parker  v.  Muggridge,  2 
Story,  334.  and  Judge  Wake  acted  on  this  intimation  and  decreed  to 
the  assignee  the  possession  of  the  joint  books  and  accounts  which  were 
in  the  possession  of  the  insolvent  partner,  who  was  not  a  technical 
bankrupt.  Aver  v.  Brastow,  5  Law  Reporter.  498.  But  I  have  seen 
no  case  which  decides  that  a  preference  by  two  partners  can  be  avoided 
by  the  assignee  of  only  one  of  them.  A  preference  is  valid  at  common 
law  and  in  equity,  and  is  voidable  only  by  the  assignee  in  bankruptcy, 
and  only  when  the  proceedings  in  bankruptcy  are  begun  within  four 
months,  or,  according  to  another  section  of  the  statute,  within  six 
months  after  the  act  is  committed  •  but  in  this  case,  the  defendant, 
Farnum,  has  not  become  bankrupt,  and  six  months  have  elapsed,  so 
that  it  is  conclusively  settled  that  there  has  been  no  joint  preference. 
Now  the  assignment  does  not  vest  the  joint  property  in  the  assignee  of 
one  partner,  and  he  cannot  sue  for  it  without  joining  the  other  partner. 
Eckhardt  w.  Wilson,  8  T.  R.  142.  It  does  not  dissolve  an  attachment 
of  joint  property  theretofore  made  at  the  suit  of  a  joint  creditor. 
Fern  v.  Cushing,  4  Cush.  357.  The  equities  of  the  separate  assignee 
must  be  worked  out  through  the  title  of  his  assignor.  The  decision  of 
Judge  Wake  was  founded  on  the  equit\-  which  each  partner  has,  to  see 
that  joint  creditors  are  paid  pro  rata;  but  a  partner  lias  no  equity  to 
set  aside  his  own   conveyances. 

I  am  not  dealing  with  the  right  of  a  separate  assignee  to  recover  the 
bankrupt's  interest  in  joint  property  conveyed  by  a  joint  fraud,  or  to 
recover  his  share  in  a  surplus.  What  I  decide  is  that  there  was  no 
joint  fraud,  because  a  preference  is  only  fraudulent  sub  modo  and 
on  condition  that  the  grantors  become  bankrupt  within  four  or  six 
months,  and  the  bill  clearly  shows  that  there  was  no  surplus.  If  the 
facts  are  truly  alleged  in  the  bill,  the  joint  creditors  should  have  taken 
care  that  both  partners  were  adjudged  bankrupt,  within  the  time 
limited  by  the  statute.  As  they  have  not  taken  this  course,  I  must 
infer  that  they  did  not  think  it  worth  their  while  to  interfere  with  what, 
in  the  absence  of  bankruptcy,  is  only  the  payment  of  a  just  debt. 

So  far  as  the  bill  seeks  an  account  from  Farnum  of  the  partnership 
affairs,  it  is  demurrable  only  on  the  ground  of  multifariousness,  and 
misjoinder,  and  may,  perhaps,  be  amended  on  proper  terms,  by  striking 
out  all  other  matters  after  the  defendants  George  and  John  Merritt 
have  been  dismissed. 

Demurrer  sustained 


460  EIGHTS   AND   EEMEDIES    OF   CREDITORS.  [CHAP.  V. 


JONES  et  al.    v.   NEWSOM   et  al. 

7  Bissell  (U.  S.  C.  C),  321.     1876. 

Jones  and  William  McEwen  were  partners  in  a  banking  business  at 
Columbus,  from  January,  1865,  to  March  1,  1870.  On  the  latter  day 
Jones  withdrew,  leaving  McEwen  in  possession,  but  without  any  formal 
dissolution.  Shortly  afterwards  McEwen  joined  with  him  his  sons, 
Gideon  and  Archibald,  in  the  same  business  and  continued  it,  usinsf 
the  same  books  that  had  been  used  by  McEwen  &  Jones,  until  Septem- 
ber, 1871,  when  the  three  McEwens  were  adjudged  bankrupts.  The 
assignees  in  taking  possession  of  the  property  and  effects  of  the 
McEwens,  found  among  them  certain  choses  in  action  and  other  per- 
sonal property  known  to  have  been  the  property  of  McEwen  &  Jones 
at  the  time  Jones  withdrew.  The  firm  of  McEwen  &  Jones  was  insol- 
vent. Jones  demanded  of  the  assignees  that  they  should  apply  this 
property  to  the  payment  of  the  debts  of  McEwen  &  Jones,  which  they 
declined  to  do,  but  agreed  with  him  to  keep  a  separate  account  of  all 
the  effects  of  McEwen  &  Jones  and  hold  them  subject  to  the  order  of 
this  court.  This  they  have  done,  and  in  this  cause  they  appear  merely 
as  stakeholders.  The  bill  is  filed  by  Jones  and  the  creditors  of  McEwen 
&  Jones,  to  compel  the  application  of  the  funds  of  McEwen  &  Jones,  in 
the  hands  of  McEwen  &  Sons,  to  the  payment  of  the  debts  of  McEwen 
&  Jones.  Certain  individual  creditors  of  William  McEwen,  who  were 
permitted  to  intervene,  answer,  and  deny  the  title  of  McEwen  &  Jones 
and  of  their  creditors,  and  insist  that  the  title,  after  the  dissolution  of 
that  firm  and  the  bankruptcy  of  William  McEwen,  and  the  possession 
of  the  assignees  under  their  deed  of  assignment,  was  in  the  assignees, 
as  their  trustees,  and  that  no  distribution  of  the  fund  can  be  made  to 
the  creditors  of  McEwen  &  Jones  ;  or,  if  any,  that  it  can  at  most  only 
be  ratably  with  them  as  creditors  of  William  McEwen.  Upon  this  state 
of  facts  the  master  reported  a  finding  for  the  complainants.  The  indi- 
vidual creditors  of  William  McEwen  filed  exceptions  to  the  report. 

Baker,  Hord,  cb  Hendricks,  and  Herod  &  Whiter,  for  complainants. 

H.  W.  Harrington,  and  McDonald  &  Butler,  for  the  intervening 
creditors. 

Gresham,  J.  William  McEwen  took  the  assets  in  question,  clothed 
with  a  trust.  In  equity  they  belonged  to  the  creditors  of  McEwen  & 
Jones.  William  McEwen  was  the  trustee  of  these  creditors,  and  upon 
a  proper  application  a  court  of  equity  would  have  compelled  him  to 
account  to  them  for  the  trust  propert}'.  The  individual  creditors  of  a 
surviving  partner  who  has  possession  of  the  firm  assets  have  no  right 
on  those  assets  as  against  the  firm  creditors. 

The  fact  that  the  creditors  of  McEwen  &  Jones  failed  to  assert  their 
right  to  these  assets  from  the  time  of  the  virtual  dissolution  of  that  firm 
in  March,  1870,  until  the  bankruptcy  of  McEwen  &  Sons  in  September, 
1871,  cannot  be  said  to  amount  to  laches  on  their  part.     There  is 


§  4.]  THE    BANKRUPTCY    OF   A    PARTNER  461 

nothing  in  the  evidence  showing  that  McEwen  &  Sons  ever  paid  a  cent 
for  these  assets  or  claimed  any  title  to  them. 

The  adjudication  of  bankruptcy  against  William  McEwen  &  Sons 
operated  upon  the  firm  and  the  individual  members  of  it,  and  transferred 
into  the  hands  of  the  law  their  individual  and  partnership  assets  to  be 
distributed  to  the  individual  and  partnership  creditors.  Jones  was  not 
a  party  to  that  adjudication.  As  already  stated,  the  assets  of  McEwen 
&  Jones  passed  into  the  hands  of  McEwen,  charged  with  the  payments 
of  the  debts  of  that  firm.  A  portion  of  these  assets  reached  the  ban. Is 
of  McEwen's  assignees  in  bankruptcy.  That  portion  is  perfectly 
identified,  and  the  assignees  have  kept  a  distinct  account  of  it.  The 
assignees  of  William  McEwen  or  of  McEwen  &  Sons  acquired  no  title 
under  the  deed  of  assignment  to  these  assets  which  thus  found  their 
way  into  their  possession.  Amsinck  v.  Beau,  22  Wall.  395  ;  Holland 
v.  Fuller,  13  Ind.  195. 

Part  of  the  debts  of  McEwen  &  Jones  are  still  unpaid,  and  those 

unpaid  creditors,  or  Jones  as  surviving  partner,  in  their  behalf,  have  a 

right  to  the  assets  in  controversy. 

Exceptions  overruled. 


OGDEN   v.   ARNOT. 

29  Hun  (N.  Y.),  146.     18S3. 

The  firm  of  William  H.  Gregg  &  Co.  was  composed  of  William  H. 
Gregg,  who  conducted  the  business,  and  Henry  W.  Beadle,  who  was  a 
private  banker.  On  the  22d  of  March,  1878,  Beadle,  being  insolvent, 
made  an  assignment  of  all  his  property  of  every  nature  to  Hall  &  Gillett, 
in  trust  for  the  payment  of  his  debts.  His  individual  property  was 
insufficient  to  pay  his  individual  debts. 

On  the  26th  of  March,  1878,  William  H.  Gregg,  in  the  firm  name, 
executed  a  chattel  mortgage  to  the  defendant,  Arnot,  upon  all  the  stock 
of  goods  of  the  firm  and  the  fixtures  in  their  store,  to  secure  $8,070.61 
and  interest  within  three  months,  the  mortgages  containing  a  covenant 
to  pay  that  sum  at  that  time.  This  sum  was  for  the  money  loaned  to 
the  firm  and  the  goods  sold  to  it.  The  firm  was  then  indebted  to  per- 
sons other  than  Arnot.  The  inventory  and  schedule  of  the  assignees 
were  filed  about  April  21,  1878,  and  do  not  include  the  interest  of 
Beadle  in  the  said  firm.  In  April,  1878,  Gregg  commenced  an  action 
against  Hall  &  Gillett,  assignees,  alleging  the  partnership  aforesaid,  and 
the  assignment  by  Beadle  to  them,  and  asking  a  dissolution  of  the 
partnership,  the  taking  of  an  account,  and  the  appointment  of  a 
receiver.  Hall  &  Gillett,  assignees,  appeared,  and  by  consent  of 
parties,  without  making  Beadle  a  party,  an  order  was  entered  May  11, 
1878,  appointing  the  present  plaintiff,  Ogden,  receiver  of  the  partner- 
ship property  of  the  firm  with  the  usual  powers. 


462  RIGHTS   AND   REMEDIES    OF    CREDITORS.  [CHAP.  V. 

On  the  10th  of  April,  1878,  Arnot  had  taken  possession  of  certain 
whiskey  belonging  to  the  said  firm,  by  virtue  of  his  chattel  mortgage, 
and  had  sold  the  same.  On  the  12th  of  May,  1878,  the  receiver  took 
possession  of  the  stock  other  than  the  whiskey,  and  while  he  was 
inventorying  it  on  the  22d  of  Ma}-,  1878,  Arnot  took  the  same  under 
his  c-hattel  mortgage  and  sold  it.  Thereupon  the  plaintiff,  Ogden,  the 
receiver,  in  September,  1878,  commenced  an  action  against  Arnot, 
Hall  &  Gillett,  asking  for  relief  of  various  kinds,  but  substantially  seek- 
ing to  recover  for  the  property  taken  by  Arnot  under  his  chattel 
mortgage.  Subsequently,  on  the  10th  of  January,  1881,  upon  a  stipu- 
lation of  Beadle  appearing  by  attorney,  and  on  motion  of  Ogden,  the 
receiver,  without,  so  far  as  appears,  an}7  consent  of  Gregg,  the  plaintiff 
in  the  action,  an  order  was  made  in  the  action  brought  by  Gregg  against 
Hall  &  Gillett,  assignees,  making  Beadle  a  party  defendant  therein,  and 
amending  the  summons  and  complaint  by  naming  him  as  a  party 
defendant,  and  amending  the  order  appointing  the  receiver  by  adding 
Beadle's  name  as  defendant. 

Thereafter,  on  the  10th  of  May,  1881,  the  referee,  before  whom  the 
present  action  was  tried,  reported  in  favor  of  the  plaintiff  Ogden  against 
Arnot  for  $3,437.16  and  interest,  the  value  of  the  stock,  not  the  whiskey, 
taken  by  Arnot.  On  such  report  judgment  was  entered  and  the  defend- 
ant Arnot  appeals. 

J.  McOuire,  for  the  appellant. 

Erastus  P.  Hart,  for  the  respondent. 

Learned,  P.  J.  It  is  not  necessary  to  consider  the  transaction  on 
which  the  debts  to  Arnot  arose,  because  it  is  plain  that  they  were  valid 
debts  owing  to  the  firm  by  him.  Nor  is  it  of  any  consequence  that  the 
mortgage  was  not  recorded. 

The  assignment  by  Beadle  is  in  terms  broad  enough  to  convey  all  his 
property.  This  did  not  transfer  the  corpus  of  the  partnership  property  ; 
but  only  his  share  of  what  would  remain  after  the  debts  were  paid. 
Menajrh  v.  Whitwell.  52  N.  Y.  146,  at  158.  It  does  not  appear  by  the 
appeal  papers  whether  the  trust  was  for  the  payment  of  individual 
debts,  or  of  all  his  debts.  But  that  is  of  little  moment,  under  the 
principle  just  cited.  See,  in  this  connection,  Wilson  v.  Robertson,  21 
N.  Y.  587. 

It  does  not  seem  to  be  disputed  by  either  party  to  this  controversy 
that  the  act  of  Beadle  in  assigning  his  whole  property,  including,  there- 
fore, whatever  might  belong  to  him  in  the  partnership,  worked  a  dissolu- 
tion of  the  partnership.  This  must  be  so  ;  because  one  partner  cannot, 
against  the  will  of  the  other,  introduce  a  new  member  into  the  partner- 
ship. Marquand  v.  New  York  Manf.  Co.,  17  Johns.  525;  Story  on 
Partn.  §  307,  etc.  Where  there  is  a  voluntary  dissolution  and  no 
agreement  as  to  the  settlement  of  the  partnership  business,  it  is  plain 
that  one  partner  has  the  same  power  as  the  other  in  that  respect.  But 
where,  as  in  this  case,  one  partner  has  broken  up  the  partnership  by 
his  assignment  in  insolvency,  it  is  plain  that  he  has  not  the  right  to 


§  4.]  THE    BANKRUPTCY    OF    A    PARTNER.  463 

manage  the  closing  up  of  the  business.  That  right  belongs  to  the 
other  party,  subject  of  course  to  the  control  of  the  court,  if  the  right  is 
abused.  Story.  Partn.  341.  Gregg,  therefore,  had  the  right  to  go  on 
with  the  closing  up  of  the  business.  It  would  be  most  unreasonable  if 
the  insolvent  partner  should,  by  his  insolvency,  deprive  the  solvent 
partner  of  the  power  of  closing  up  the  partnership  for  the  payment  of 
the  debts  of  which  he  is  liable.  Evans  w.  Evans,  9  Paige.  178  ;  Robbins 
v.  Fuller,  24  N.  Y.  570;  Van  Doren  v.  Horten,  19  Hun.  7. 

The  power  to  close  up  the  business  of  the  partnership  includes  neces- 
sarily the  power  to  sell  the  partnership  property,  to  collect  the  partner- 
ship accounts,  and  to  pay  the  partnership  debts.     Certainly,  then.  ( Iregg 
could  have  sold  Arnot  the  stock  of  goods  and  the  whiskey  ;  could  have 
received  the  price,  and  with  the  price  could  have  paid  any  partnership 
debt.     The  general  principle,  except  as  it  may  be  modified  by  a  bank- 
rupt law,  is  that  a  debtor  may  pay  one  creditor  before  he  pays  another  ; 
even  that  he  may  pay  one  creditor  to  the  exclusion  of  the  other.     And 
it  seems  to  be  settled  by  decisions  that,  on  the  dissolution  of  the  part- 
nership by  the  death  of  one  partner,  or  by  his  insolvent  assignment,  the 
remaining  partner  may  exercise  that  same  preference  of  one  partnership 
creditor  over  the  other.     Egberts  r.  Wood,  3  Paige,  517;   Loeschigk 
v.  Addison,  4  Abb.  Pr.  N.  s.   210.     Certainly  that  must  be  so,  unless 
the  partnership  be  insolvent ;  and  such  insolvency  is  not  shown  in  this 
case.     If,  then,  the  remaining  partner,   after  such  a  dissolution,  may 
sell  the  partnership  property,  and  may  apply  the  avails  to  such  partner- 
ship debt  as  he   chooses,  it  follows   that  he  may  directly  apply  the 
partnership  property  to  the  payment  of  a  partnership  debt.    The  equi- 
table right  which  the  insolvent  partner  has,  or  which  the  representatives 
of  a  deceased  partner  have,  is  that  the  partnership  property  be  applied 
to  the  payment  of  partnership  debts.    That  is  all ;  and  that  right  is  not 
infringed  by  the  turning  out  of  partnership  property  to  pay  a  partner- 
ship debt. 

In  this  present  case,  however,  Gregg  mortgaged  the  property  to 
Arnot.  Now  Gregg  had  the  legal  title  to  the  property.  He  could  sell, 
and  convey,  and  transfer.  Why  could  he  not  mortgage?  Of  course  a 
mortsrasre  for  his  individual  and  antecedent  debt  might  be  invalid ; 
because  it  would  be  paying  his  own  debt  out  of  partnership  property 
for  no  new  consideration.  But  I  do  not  see  why  he  may  not  mortgage 
partnership  property  for  a  partnership  debt.  The  learned  referee  argues 
that  he  cannot  mortgage,  because  he  cannot  create,  or  renew,  a  part- 
nership obligation.  For,  he  says,  the  partner  thus  impairs  the  right  of 
the  creditors  to  payment  of  their  debts  without  delay.  P>ut  when  any 
debtor  mortgages  his  property  to  secure  a  just  debt,  does  he  impair  the 
right  of  the  other  creditors  to  the  payment  of  their  just  debts  without 
delay?  Of  course  a  creditor  may  be  unable  to  collect  his  debt  out  of 
mortgaged  property,  and  yet  it  is  lawful  for  a  debtor  to  mortgage  his 
property  for  a  valid  debt,  and  to  make  the  mortgage  payable  at  a  future 
time.     We  must  remember  that  this  debt  to  Arnot  was  a  debt  of  the 


464  EIGHTS   AND    REMEDIES    OF   CREDITORS.  [CHAP.  V 

solvent  Gregg,  just  as  much  as  it  was  the  debt  of  the  insolvent  Beadle. 
All  that  Beadle  could  claim  — all  that  the  creditors  of  the  partnership 
could  claim  —  was  that  Gregg  should  use  the  partnership  property  to 
discharge  the  partnership  debts,  and  not  to  discharge  his  individual 
debts.     That  he  has  done. 

But  it  is  said  that  Gregg  signed  the  firm  name,  and  that  the  mortgage 
contained  a  covenant  to  pay.  When  Beadle  is  sued  on  that  covenant, 
the  dissolution  of  the  partnership  will  be  a  good  defence  to  the  action. 
But  the  mortgage  is  good  enough  as  a  transfer  of  the  property,  and 
probably  the  covenant  to  pay  is  binding  on  Gregg.  I  think  it  not 
accurate  to  say,  in  the  language  of  the  learned  referee,  that  on  the  dis- 
solution Gregg  immediately  became  the  trustee  of  the  firm  property  for 
the  benefit  of  the  firm  creditors,  or  for  Beadle  and  his  assignees.  He 
was  not  a  trustee,  but  was  the  owner  of  the  property.  Only  in  paying 
from  its  avails  the  debts  which  he  himself  owed,  it  was  his  duty  "first 
to  pay  those  which  he  owed  as  partner  with  Beadle.  When  we  speak 
of  a  man  as  trustee,  who  is  not  strictly  a  trustee,  we  are  often  led 
into  deductions  from  the  word  which  may  be  erroneous.  Pars,  on 
Partn.  345.  .  .  . 

The  judgment  must  be  reversed,  new  trial  granted,  referee  discharged, 
costs  to  abide  event. 


FERN   v.    CUSHING  et  al. 

4  Cush.  (Mass.)  357.     1849. 

Shaw,  C.  J.  This  was  a  writ  of  scire  facias  against  Daniel  Crush- 
ing and  Sewall  G.  Mack,  as  trustees.  It  appears,  by  the  answers  and 
the  facts  agreed,  that  suits  were  brought,  first  by  Francis  Vose,  and 
second  by  the  plaintiff  Fern,  against  Whitney  and  Blair,  and  the 
present  defendants  as  their  trustees.  .  .  .  The  plaintiff's  action, 
though  commenced  after  that  of  Francis  Vose,  came  to  judgment  first; 
and  the  plaintiffs  took  out  execution,  and  placed  it  in  the  hands  of 
an  officer,  who  duly  made  demand  upon  the  defendants  for  the  funds 
in  their  hands,  they  having  been  charged  as  trustees,  and  execution 
awarded  in  usual  form  against  the  goods  and  effects  of  Whitney  and 
Blair  in  their  hands.  Afterwards,  judgment  was  rendered,  in  the 
action  of  Francis  Vose,  and  execution  also  awarded  against  the  goods 
and  effects  of  Whitney  and  Blair,  in  the  hands  of  the  defendants,  — 
Vose's  being  the  first  attachment.  This  execution  was  placed  in  the 
hands  of  an  officer,  and  a  demand  made  upon  the  defendants  for  the 
goods  and  effects  of  Whitney  and  Blair  in  their  hands.  This  occurred 
on  the  24th  of  March,  1847.  On  the  morning  of  the  same  day,  the 
first  publication  was  made  of  a  notice  issued  by  a  messenger,  upon  a 
proceeding  in  insolvency,  upon  the  application  of  Blair  alone,  after 
the  dissolution  of  the  partnership  of  Whitney  and  Blair.     It  appears 


§  4.]  THE    BANKRUPTCY    OF    A    PARTNER.  465 

that  he  did  not  set  forth  the  insolvency  of  the  firm,  but  only  bis  own; 
and  the  warrant  and  other  proceedings  were  conducted  upon  the  prin- 
ciple of  his  several  insolvency.  The  messenger,  under  this  warrant, 
demanded  the  funds  in  the  hands  of  the  defendants.  Afterwards  the 
defendants  paid  over  the  whole  balance  of  the  funds  in  their  hands, 
after  deducting  the  amount  which  they  were  allowed  by  the  court  to 
retain  for  their  costs  and  expenses  as  trustees,  on  the  execution  of 
Vose,  as  the  first  attaching  creditor. 

The  ground  on  which  the  plaintiff  seeks  to  charge  these  defendants 
as  trustees,  after  they  have  paid  over  the  entire  fund  on  the  execution 
of  the  previous  attaching  creditor,  is  this:  that  the  plaintiff,  by  suing 
out  his  execution  against  Whitney  and  Blair,  and  causing  demand  to 
be  made  of  their  effects  in  the  hands  of  the  defendants,  had  perfected 
his  lien  on  the  fund,  so  as  to  place  it  beyond  the  risk  of  being 
defeated,  and  having  his  attachment  dissolved  by  any  proceedings  in 
insolvency;  but  that  Vose,  though  he  recovered  judgment  and  took 
out  execution,  did  not  have  a  demand  made  on  the  trustees  on  his 
execution  until  after  the  first  publication  of  the  notice  of  insolvency, 
and  therefore  that  his  attachment  was  thereby  defeated,  and  let  in 
the  plaintiff  as  the  first  indefeasible  lien  on  the  fund. 

This  reasoning  is  plausible,  but,  we  think,  not  sound,  and  not 
sufficient  to  give  the  plaintiff,  as  second  attaching  creditor,  a  priority 
over  Vose,  who  was  the  first. 

It  is  not  necessary  now  to  decide  what  act  by  an  attaching  creditor 
is  a  sufficient  taking  of  the  property  in  the  hands  of  a  trustee,  so  as 
to  prevent  a  dissolution  of  the  attachment  by  insolvent  proceedings, 
whether  it  be  the  judgment,  the  issuing  of  execution,  the  delivery  of 
such  execution  to  an  officer,  or  the  demand  by  the  officer  upon  the 
trustee.     This  decision  stands  on  other  grounds. 

The  insolvent  proceedings  were  against  Blair  alone.  The  assignee 
under  these  proceedings  had  no  right  to  take  the  partnership  property, 
except  the  share  and  interest  of  the  insolvent,  after  the  payment  and 
satisfaction  of  partnership  debts.  The  assignment  extended  only  to 
the  interest  of  the  insolvent  partner,  in  the  property  and  effects  of 
the  partnership,  after  the  payment  of  partnership  debts.  Pierce  v. 
Jackson,  6  Mass.  242;  Allen  v.  "Wells,  22  Pick.  450;  Dyer  v.  Clark, 
5  Met.  562;  Parker  /•.  Phillips,  2  Cush.  175. 

The  insolvent  proceedings,  therefore,  against  Blair  did  not  affect 
the  partnership  property  attached  by  Vose  in  the  hands  of  the  trus- 
tees, who  were  indebted  to  the  firm  only;  and  the  messenger  under 
these  proceedings  had  no  right  to  the  property,  and  the  trustees  right- 
fully paid  over  the  funds  in  their  hands,  on  Vose's  execution,  as  the 
prior  attaching  creditor.  Nothing  remained  to  satisfy  the  execution 
of  the  plaintiff.  Judgment  for  the  defendants. 

30 


466  EIGHTS   AND   REMEDIES    OF   CREDITORS.  [CHAP.  V. 

COREY   et  al.  v.  PERRY  et  al. 
67  Me.  140.     1877. 

Plaintiffs  sued  the  defendants  Perry  and  Dunn  for  a  debt  con- 
tracted by  them  as  partners.  Perry  pleaded  his  discharge  in  bank- 
ruptcy. The  trial  court  ruled  that  his  discharge  did  not  extend  to 
the  partnership  debts  of  Perry  &  Dunn,  and  gave  judgment  against 
both  defendants.     Perry  alleged  exceptions. 

G.  A.   Wilson,  for  the  defendant. 

A.  J.  Blethen,  for  the  plaintiffs. 

Appleton,  C.  J.  The  bankrupt  law  of  the  United  States  provides 
for  the  discharge  of  individuals  from  individual  debts  and  of  part- 
ners from  the  debts  of  the  firm.  The  assets  of  the  individual  cannot 
be  diverted  from  the  payment  of  individual  debts  to  the  payment  of 
firm  debts,  nor  can  those  of  the  firm  from  firm  debts  to  the  payment 
of  individual  debts.  The  individual  estate  and  its  assets  and  liabil- 
ities and  the  firm  estate  and  its  assets  and  liabilities  are  kept  separate 
and  distinct,  so  that  the  creditors  of  the  firm  and  of  the  individuals 
composing  it  may  receive  equal  and  exact  justice. 

The  twelfth  rule  of  the  District  Court  of  the  United  States  for  the 
district  of  Maine  is  as  follows:  "  Whenever  a  debtor  shall  desire  to 
be  discharged  from  his  liabilities  as  a  member  of  a  co-partnership, 
as  well  as  from  his  individual  indebtment,  Form  No.  1,  as  prescribed 
by  the  rules  and  orders  of  the  Supreme  Court,  shall  be  altered  by 
setting  forth  therein  a  description  of  such  firm,  with  the  names  and 
places  of  residence  of  the  co-partners,  and  shall  pray  for  the  discharge 
of  the  petitioner  from  his  liabilities  as  member   of  such  firm." 

The  propriety  and  justice  of  this  rule  is  apparent.  The  petitioners 
for  a  discharge  in  bankruptcy  should  clearly  state  from  what  debts 
they  desire  to  be  discharged :  if  as  individuals,  that  they  desire  a 
discharge  from  individual  liabilities;  if  as  members  of  a  firm,  that 
they  desire  a  discharge  from  partnership  liabilities,  or  from  partner- 
ship and  individual  liabilities. 

The  defendant,  James  C.  Perry,  was  a  member  of  the  firm  of  Perry 
&  Dunn.  In  his  petition  he  desired  only  to  be  discharged  as  an 
individual.  He  did  not  set  forth  that  he  was  a  member  of  any  firm. 
He  petitioned  for  no  discharge  from  his  firm  debts.  He  set  forth  no 
firm  liabilities  and  disclosed  no  firm  assets.  The  firm  of  Perry  & 
Dunn  has  not  been  declared  bankrupt.  It  has  not  been  before  the 
District  Court  sitting  in  bankruptcy  nor  within  its  jurisdiction.  Is 
then  the  discharge  of  Perry  a  discharge  from  the  firm  debts  as  well  as 
from  his  individual  liabilities? 

In  Re  William  H.  Little,  1  Bankr.  Reg.  341,  Little  had  been  a 
partner  with  one  Dana,  and  commenced  voluntary  proceedings  in 
bankruptcy  in  his  own  name.  In  his  schedules  the  debts  and  assets 
of   the  firm  of   Little  &  Dana   were  mentioned,  and   the  petitioner 


§  4.]  THE    BANKRUPTCY   OF   A   PARTNER.  467 

prayed  to  be  discharged  from  all  his  debts,  but  fearing  that  by  such 
proceedings  he  would  not  be  discharged  from  the  debts  of  Little  & 
Dana,  he  asked  that  his  proceedings  might  be  so  amended  that  Dana 
misht  be  made  a  party  and  cited  to  show  cause  why  the  firm  of  Little 
&  Dana  should  not  be  declared  bankrupt.  Upon  this  question  of 
amendment,  Blatchford,  J.,  says:  "Under  these  circumstances,  as 
the  petitioner  prays  to  be  discharged  from  all  his  debts  provable 
under  the  act,  and  some  of  the  debts  set  forth  iu  the  schedule  annexed 
to  his  petition  are  debts  of  the  said  firm,  and  as  this  petition  is  one 
to  have  the  firm  declared  bankrupt  on  the  petition  of  its  partners, 
within  the  provision  of  §  36  of  the  act  and  of  general  order  No.  18, 
as  Dana  did  not  join  with  Little  in  his  original  petition,  he  ought 
to  have  been  brought  by  proper  proceedings  under  general  order  No. 
18,  before  an  adjudication  of  bankruptcy  was  made  on  the  petition  of 
Little;  the  defect  is  now  sought  to  be  remedied  by  Little.  His  peti- 
tion requires  to  be  amended.  When  he  is  so  brought  in,  he,  Little, 
can  be  discharged  from  the  debts  of  the  firm  because  the  theory  and 
intent  of  §  36  of  the  act  and  general  orders  Nos.  16  and  18  are,  that 
the  creditors  of  a  firm  shall  be  required  to  meet,  but  once  and  in  our 
bankruptcy  forum,  all  questions  in  regard  to  the  bankruptcy  of  the 
firm  and  in  regard  to  debts  against  the  firm."  In  Amsinck  v.  Bean, 
22  Wall.  395,  it  was  decided  that  the  assignee  in  bankruptcy  of  the 
estate  of  an  individual  partner  of  a  debtor  co-partnership  could  not 
maintain  a  suit  to  recover  hush  money  previously  paid  to  a  cred- 
itor of  the  co-partnership,  upon  the  ground  that  the  money  was  paid 
to  such  creditor  in  fraud  of  the  other  creditors  of  the  firm,  and  in 
fraud  of  the  provisions  of  the  Bankrupt  Act.  The  suit  should  be  by 
the  assignee  of  the  firm.  So  that  in  this  case,  the  assignee  of  Perry 
could  not  have  collected  any  of  the  assets  of  Perry  &  Dunn.  The 
firm  debts  shouid  not  be  discharged  when  the  firm  creditors  could  not 
possibly  have  their  share  of  its  assets. 

The  firm  assets  were  never  before  the  bankrupt  court.  Neither 
were  the  firm  debts.  "It  is  difficult,"  remarks  Drummond,  J., 
In  re  Noonan,  3  Biss.  491,  "to  see  how  any  member  of  the  firm  can 
be  released  from  his  personal  liabilities  as  such  without  the  court 
substantially  looking  into  all  the  transactions  of  the  firm  and  settling 
up  its  affairs.  A  man  cannot  be  discharged  from  his  liabilities  as  a 
member  of  the  firm  unless  the  debts  and  assets  of  the  firm  are  con- 
sidered and  adjudicated  by  the  court."  The  fact  that  persons  have 
been  adjudicated  bankrupts  as  members  of  one  firm  is  no  bar  to  nor 
does  it  defeat  a  petition  against  them  as  partners  with  others  in 
another  firm.  In  re  Jewett,  16  N.  B.  R.  48.  In  Budgins  v.  Lane, 
11  N.  B.  R.  463,  it  was  decided  that  the  discharge  of  a  member  of 
a  firm  upon  his  individual  petition  in  bankruptcy  and  without  any  pro- 
ceedings by  or  against  the  firm,  does  not  discharge  such  member  from 
the  partnership  debts.  See  also  Compton  v.  Coukliug,  15  N.  B.  R 
417. 


468 


RIGHTS    AND    REMEDIES   OF   CREDITORS.  [CHAP.  V. 


The   conclusion  is  that  Perry  has  not  been  discharged  from  his 
partnership  debts. 

Exceptions  overruled.1 
Walton,  Barrows,  Virgin,  Peters,  and  Libbey,  JJ.,  concurred. 


GAVIN,    C.  J.,    in  MATTIX  v.    LEACH. 

43  N.  E.  969:  16  Ind.  App.  — .     1896. 

"Appellant  claims  that  John  M.  Leach's  discharge  in  bankruptcy 
does  not  free  him  from  the  debt  sued  on.  Whether  an  individual  dis- 
charge operates  upon  firm  debts,  when  the  firm  has  not  been  brought 
into  bankruptcy,  is  a  much- vexed  question,  as  to  which  the  authorities 
are  in  hopeless  conflict.  Quite  a  number  sustain  the  negative  of  the 
proposition.  In  re  Noonan,  18  Fed.  Cas.  298;  Hudgins  v.  Lane,  12 
Fed.  Cas.  800;  In  re  Little,  15  Id.  598;  In  re  Grady,  3  N.  B.  R.  228; 
Corey  v.  Perry,  67  Me.  140.  In  some  of  these  cases  the  question 
was  only  incidentally  involved.  In  the  last  cited  it  appeared  that 
the  bankrupt  did  not  mention  the  firm  debts  in  his  schedules,  nor  ask 
to  be  discharged  therefrom.  Other  decisions  of  the  same  judges,  or 
others  following  in  the  line  of  these,  but  limiting  the  expressions 
used  in  them,  declare  that  the  discharge  is  effective  unless  there  were 
partnership  assets  at  the  time  of  the  adjudication,  and  that  the  bur- 
den of  showing  assets  rests  upon  the  creditor.  Crompton  v.  Conkling, 
15  N.  B.  R.  417;  In  re  Johnston,  17  Fed.  71;  In  re  Plumb,  19  Fed. 
Cas.  886.  There  are  authorities,  however,  maintaining  that  the  dis- 
charge does  operate  upon  partnership  as  well  as  individual  debts. 
These  we  believe  to  be  founded  upon  better  principle.  The  discharge 
purports  to  relieve  the  bankrupt  from  all  debts  provable  against  him. 
Firm  debts  are  undoubtedly  provable  against  the  individual  estate. 
It  is  true,  they  may  not,  under  some  circumstances,  be  permitted  to 
share  in  the  assets  until  the  individual  debts  are  paid;  but  that  does 
not  prevent  their  being  proved,  and  their  holders  exercising  certain 
rights  allowed  creditors.     It  may  be  that  a  firm  is  abundantly  solvent 

1  In  Eansom  v.  Wardlaw  Co.,  27  S.  E.  158  :  99  Ga.  540  (1896),  the  court  said  :  "  The 
case  arose  upon  a  creditors' petition,  under  the  'Insolvent  Traders'  Act '  (Code,  § 3149a 
et  seq.),  against  a  firm  of  which  Ransom,  the  plaintiff  in  error,  was  a  member;  and, 
upon  the  trial  of  the  case,  Ransom  offered  evidence  to  show  that  at  the  time  of  the 
filing  of  the  petition,  and  at  all  times  since,  he  was  solvent,  and  amply  able  to  pay  his 
own  indebtedness  and  that  of  the  firm  ;  but  the  court  rejected  the  evidence,  and  this  is 
complained  of  in  the  motion  for  a  new  trial,  the  movant  insisting  that  a  firm  is  not 
insolvent  as  long  as  either  of  its  members  is  solvent,  and  that  no  creditors'  petition  will 
lie  unless  the  firm  is  insolvent  by  reason  of  the  insolvency  of  its  members.  The  court 
did  not  err  in  refusing  to  admit  such  evidence.  Although  the  partners,  as  individuals, 
may  be  perfectly  solvent,  the  firm,  as  such,  may  be  insolvent.  Drucker  v.  Wellhouse, 
82  Ga.  135." 


§  4.]  THE    BANKRUPTCY    OF    A    PARTNER.  469 

when  the  adjudication  is  made,  so  that  there  is  no  cause  to  bring  it 
into  bankruptcy,  or  it  might  lie  that  the  individual  is  insolvent  merely 
by  reason  of  the  deficit  of  partnership  assets.  As  it  seems  to  us,  the 
firm  debts  are  fairly  within  the  purview  of  the  statute  and  the  dis- 
charge. Judge  Lowell,  in  Wilkins  v.  Davis,  1">  X.  B.  R.  GO,  dis- 
cusses the  question  elaborately,  collates  the  authorities,  and  sustains 
his  decision  by  sound  logic.  The  majority  of  the  court  is  of  the 
opinion  that  the  ends  of  justice  will  be  subserved  by  directing  a  new 
trial. 

"  The  judgment  is  accordingly  reversed,  with  such  direction." 


RUSSELL  et  al.   v.   COLE. 

167  Mass.  6  :  44  N.  E.  1057.     1896. 

Tort  by  Russell  &  Martin,  co-partners,  for  the  conversion  of  firm 
property.  Defendant,  a  deputy  sheriff,  justified  under  a  writ  against 
Martin,  on  which  he  attached  the  property.  The  attachment  was 
issued  on  the  ground  of  Martin's  insolvency.  Before  this  action 
came  to  trial,  Martin  had  beeu  declared  insolvent  and  the  defendant 
had  surrendered  the  property  in  question  to  Martin's  assignee.  This 
property  had  been  Martin's  separate  estate,  until  it  was  transferred 
to  the  firm  of  Russell  &  Martin,  on  August  31,  1893.  The  attachment 
was  levied  a  few  hours  after  the  partnership  was  formed.  Verdict 
for  the  plaintiffs  for  the  full  value  of  the  goods.  Defendant  alleged 
exceptions. 

C.  H.  Sprague,  for  the  defendant. 

C.  A.  De  Courcy  &  W.  Coutson,  for  the  plaintiffs. 

Kxowlton,  J.  The  conveyance  by  Martin  to  Russell  was,  on  the 
part  of  Martin,  fraudulent  as  against  creditors,  and  in  contravention 
of  the  statute  relating  to  insolvency.  But  Russell  had  no  knowledge 
of  this  fact,  and  did  not  in  any  way  participate  in  the  fraud.  The 
contract,  therefore,  took  effect  according  to  its  terms.  Russell  became 
a  co-partner  with  Martin,  and  the  goods  sold  became  partnership 
property.  The  rights  of  Russell,  who  bought  in  good  faith,  for  a 
valuable  consideration,  were  not  in  any  way  affected  by  the  fraud  of 
Martin,  of  which  he  was  ignorant.  The  property  which  thus  became 
assets  of  the  partnership  under  the  contract  could  not  afterwards  be 
attached  on  a  debt  against  one  of  the  partners,  and  the  defendant,  as 
attaching  officer,  acquired  no  valid  title.  Sanborn  v.  Royce,  132 
Mass.  504;  Pelletier  v.  Couture,  148  Mass.  269-271. 

The  action  was  rightly  brought  in  the  name  of  both  members  of  the 
firm,  notwithstanding  the  proceedings  in  insolvency  against  Martin. 
Fish  v.  Gates,  133  Mass.  441;  Fay  y.  Duggan,  135  Mass.  212;  Byde 
v.  Food  Co.,  160  Mass.  559.     The  fact  that  Martin  was  guilty  of  a 


470  RIGHTS   AND   REMEDIES   OF    CREDITORS.  [CHAP.  V. 

fraud  in  forming  the  partnership  before  the  attachment  was  made  does 
not  prevent  the  maintenance  of  the  action.  The  principle  of  the 
decision  in  Homer  v.  Wood,  11  Cush.  62,  is  not  to  be  extended  to 
cases  like  the  present.  As,  according  to  the  finding  of  the  auditor, 
the  goods  became  partnership  property  even  as  to  creditors,  notwith- 
standing the  fraud  of  Martin,  the  suit  against  the  defendant  for 
attaching  them  wrongfully  does  not  involve  any  question  in  regard  to 
the  right  of  Martin  to  rescind  or  repudiate  the  contract,  nor  bring  his 
previous  conduct  within  the  issue.  The  defendant's  act  in  attaching 
the  partnership  property  was  a  trespass,  and  the  owners  of  the  prop- 
erty or  parties  in  possession  of  it  might  sue  for  damages  without 
regard  to  the  question  whether  one  of  them,  in  a  prevous  transaction, 
had  been  guilty  of  a  wrong  against  third  parties.  Hall  v.  Corcoran, 
107  Mass.  251;  Newcomb  v.  Protective  Department,  146  Mass. 
596-602;  Stillings  v.  Turner,   153  Mass.  534. 

The  remaining  question  in  the  case  is  whether  the  defendant  is 
entitled  to  show,  in  mitigation  of  damages,  that  he  delivered  the 
property  to  the  assignee  in  insolvency  of  Martin.  After  the  com- 
mencement of  the  proceedings  in  insolvency,  Russell  alone  had  a 
right  to  the  possession  of  the  property.  The  assignee  of  Martin  was 
only  entitled  to  a  share  in  the  surplus  of  the  partnership  assets,  if 
anything  remained  after  paying  the  debts.  The  partnership,  being 
solvent,  through  the  solvency  of  the  partner  Russell,  was  not  brought 
into  the  court  of  insolvency,  and  that  court  acquired  no  jurisdiction 
to  settle  its  affairs.  It  is  to  be  remembered  that  our  courts  of  insol- 
vency are  creatures  of  the  statute,  and  that  they  have  no  jurisdiction 
except  that  which  the  statute  gives  to  them.  Their  only  jurisdiction 
over  partnerships  is  conferred  by  Pub.  St.  c.  157,  §  120,  et  infra.  It 
is  only  "when  two  or  more  persons  who  are  partners  become  insol- 
vent"—  that  is,  when  the  partnership  is  insolvent  through  the  insol- 
vency of  all  the  members  of  the  firm  —  that  a  court  of  insolvency 
acquires  jurisdiction  to  settle  the  affairs  of  the  partnership;  and  in 
such  a  case  a  warrant  is  issued  upon  which  the  joint  stock  and  prop- 
erty of  the  firm  and  the  separate  estate  of  each  of  the  partners  is 
taken.  Until  the  enactment  of  St.  1894,  c.  164,  courts  of  insolvency 
had  no  jurisdiction  in  equity,  and  that  statute  confers  no  jurisdiction 
to  interfere  in  the  affairs  of  a  partnership  which  is  not  brought  into 
the  court  of  insolvency  by  regular  proceedings  by  or  against  it,  except 
in  cases  where  incidentally  to  the  proceedings  in  insolvency  there  is 
a  ground  for  equitable  relief  under  the  principles  which  govern  other 
courts  of  equity. 

When  a  partnership  is  dissolved  by  the  death  or  insolvency  of  one 
of  its  members,  the  surviving  partners  in  case  of  death,  or  the  sol- 
vent partners  in  case  one  of  the  firm  is  in  insolvency,  are  entitled  to 
the  possession  of  the  partnership  property,  and  are  bound  to  pay  all 
of  the  firm's  debts.  It  is  their  duty  to  wind  up  the  affairs  of  the 
partnership,  and  to  pay  over  to  the  representative  of  the  deceased  or 


§  4.]  ORDER   OF   PROOFS    AND   MARSHALLING.  471 

insolvent  partner  his  share  of  the  assets,  if  there  are  any  after  paying 
the  firm's  liabilities.  Hanson  v.  Paige,  3  Gray,  239-242;  Dearborn 
v.  Keith,  5  Cash.  224;  Fern  v.  Cashing,  4  Cash.  357;  Cunningham 
v.  Munroe,  15  Gray,  471-47'.*;  Nutting  v.  Ashcroft,  101  Mass.  300; 
Pelletier  v.  Couture,  148  Mass.  269,  271  ;  Amsinck  v.  Bean,  22  Wall. 
395;  2  Lindl.  Partn.  2d  Am.  ed.  669  et  seq.  If  they  fail  to  do  their 
duty  in  these  particulars,  the  executor,  administrator,  or  assiguee 
may  have  a  remedy  in  a  court  of  equity.  So  long  as  the  solvent 
partners  are  ready  and  willing  properly  to  settle  the  business  and 
dispose  of  the  property  of  the  partnership,  and  properly  to  account 
for  and  pay  over  the  proceeds,  an  assignee  in  insolvency,  under  our 
statute,  has  no  right  to  the  possession  of  the  partnership  property. 
The  partnership  property  and  the  solvent  members  of  the  firm  are 
not  within  the  jurisdiction  of  the  court  of  insolvency.  They  can  be 
brought  within  its  jurisdiction  only  upon  proceedings  in  equity,  under 
St.  1894,  c.  164,  founded  upon  facts  which  would  give  jurisdiction 
to  a  court  of  general  jurisdiction  in  equity.  Some  of  the  dicta  in 
Wilkins  v.  Davis,  15  X.  B.  R.  60,  i  Low.  511,  are  not  in  accordance 
with  the  decisions  and  practice  under  the  statutes  of  Massachusetts. 
It  follows  that  the  surrender  of  the  property  by  the  defendant  to 
Martin's  assignee  in  insolvency  was  irregular  and  unauthorized.  It 
cannot  avail  the  defendant  as  a  defence  in  this  action,  by  way  of 
mitigation  of  damages  or  otherwise.  In  the  opinion  of  a  majority  of 
the  court,  the  plaintiff  Russell  was  entitled  to  have  from  the  defend- 
ant all  of  the  property  taken  under  the  attachment;  and,  it  not  having 
been  returned  to  him,  he  may  recover  the  full  value  of  it. 

Exceptions  overruled. 


§  4.    Ordek  of  Proofs  and  Marshalling. 

MILLER'S    RIVER   NAT.    BANK   v.    JEFFERSON. 

138  Mass.  111.     1881. 

Holmes,  J.  The  Miller's  River  National  Bank  discounted  a  draft  of 
the  firm  of  Goodman,  Schofield.  &  Company,  consisting  of  Goodman, 
Hale,  and  Schofield,  who  are  now  in  insolvency  individually  and  as  a 
firm.  As  a  condition  of  making  the  discount,  the  bank  required  security 
to  be  given  for  the  whole  indebtedness  of  the  firm  to  it,  including  pre- 
vious advances  as  well  as  the  draft.  Goodman  and  Hale  accordingly 
transferred  to  the  bank  promissory  notes  of  the  firm  owned  by  them 
respectively,  and  given  for  advances  made  by  them  to  the  firm.  These 
notes  were  all  payable  on  demand.  The  discounted  draft  had  been 
paid  before  the  insolvency  proceedings  were  begun,  but  some  of  the 
previous  advances  had   not  been  ;  and  the  question  is,  whether  tho 


472  EIGHTS   AND   REMEDIES    OF    CREDITORS.  [CHAP.  V. 

bank  can  prove  the  collateral  notes,  after  having  already  proved  for 
the  whole  amount  of  the  unpaid  advances. 

The  statutes  and  decisions  have  applied  the  maxim  that  equality 
is  equity,  in  a  somewhat  mechanical  way,  to  the  distribution  of  insol- 
vent estates.  But  we  know  of  no  authority  applicable  to  this  case  that 
goes  beyond  preventing  parties  from  taking  a  larger  proportion  of 
the  fund  than  they  or  those  whom  they  represented  may  be  supposed  to 
have  contributed  to  it.  If  the  principal  and  the  collateral  claim  rep- 
resent two  distinct  contributions,  there  is  nothing"  in  the  general  policy 
of  the  insolvent  law  opposed  to  double  proof.  If,  for  instance,  a 
stranger  to  the  firm  had  held  these  notes  for  advances  made  by  him, 
and  had  pledged  them  to  the  bank  to  secure  it  for  its  subsequent  ad- 
vance, the  pledged  notes,  being  provable  before,  would  not  cease  to 
be  when  pledged,  and  the  pledgee  would  hold  any  balance  received 
above  its  debt  as  trustee  for  the  pledgor. 

In  the  present  case,  the  collateral  notes  represent  distinct  contribu- 
tions as  much  as  in  the  case  just  supposed,  —  contributions  from 
members  of  the  firm,  to  be  sure,  who  are  liable  in  solidum  for  the  firm 
debts,  but  still  contributions  diminishing  their  separate  estates  and 
swelling  that  of  the  firm.  Even  in  the  hands  of  a  partner,  they  would 
be  recognized  as  debts,  and  although  the  partner  would  not  be  allowed 
to  prove  them  in  competition  with  his  own  creditors,  if  there  were  a 
surplus  he  would  be  let  in,  and,  according  to  man}"  decisions,  would  have 
to  be  paid  in  full  before  any  dividend  could  be  paid  in  respect  to  capital. 

This  being  so,  what  substantial  reason  is  there  why  a  holder  for 
value  should  not  receive  dividends  to  the  extent  of  his  interest,  like  a 
pledgee  of  accommodation  paper  ?  It  is  true  that  the  consideration 
which  gives  this  particular  debt  its  capacity  to  compete  with  the  claims 
of  other  creditors  is  the  advance  to  the  firm,  and  that  that  advance  has 
already  been  proved  to  its  full  amount.  But  if  the  bank  had  made  a 
separate  purchase  of  these  notes,  it  could  prove  them,  although  such  a 
purchase  would  add  nothing  to  the  fund  appropriated  to  the  firm  cred- 
itors. In  this  case,  the  bank  is  equally  a  holder  for  value,  and  the 
transfer  of  the  collateral  notes  was  part  of  the  consideration  for  the 
advance  to  the  firm. 

Again,  at  the  time  the  notes  were  transferred  to  the  bank,  the  bank 
could  have  maintained  an  action  upon  them.  Thayer  v.  Buffum,  11 
Met.  398  ;  Richards  v.  Fisher,  2  Allen,  527.  Without  implying  that 
the  right  to  maintain  an  action  and  the  right  to  prove  in  insolvency 
are  co-extensive,  it  ma}'  be  said  that  one  follows  from  the  other 
pretty  directly  when  the  general  policy  of  the  insolvent  laws  has  been 
satisfied. 

The  fact  that  the  notes  were  payable  on  demand  makes  no  difference. 
Section  14  of  the  Pub.  Sts.  c.  77,  no  more  subjects  indorsees  to  a 
partner's  disability  to  prove,  than  it  does  to  his  disability  to  sue. 
Thayer  v.  Buffum,  and  Richards  v.  Fisher,   ubi  supra. 

If  the  obstacles  to  proving  the  collateral  notes,  considered  as  con- 


^  4.]  ORDER    OF    PROOFS    AND    MABSHALLING.  473 

tracts  of  the  firm,  are  overcome,  we  do  not  understand  the  defendant 
to  argue  that  they  present  any  further  difficulties  in  their  aspect  of 
securities,  or  to  deny  that  a  creditor  holding  security  from  one  partner, 
like  one  holding  it  from  a  stranger,  may  retain  his  seeurity,  and  prove 

for  the  full  amount  of  his  debt. 

Judgment  for  the  plaintiff. 


ROGER   WILLIAMS    NAT.    BANK    v.    HALL   kt  al. 
160  Mass.  171.     1893. 

Holmes,  J.  The  question  in  this  case  is  whether  the  holder  of  a 
partnership  note  made  payable  to  one  partner,  and  indorsed  by  him  to 
the  holder,  can  prove  it  in  insolvency  against  the  estates  of  both  of  the 
firm  and  of  the  indorsing  partner  before  any  dividend  is  declared  on 
either.  The  statute  is  silent.  Intimations  in  favor  of  the  right  of 
double  proof  are  to  be  found  in  Borden  y.  Cuyler,  10  Cush.  476,  477  ; 
and  in  Mead  v.  Nat.  Bank,  6  Blateh.  180,  and  in  the  decisions  Lire 
Farnum,  6  Bost.  L.  R.  21  (by  Judge  Sprague),  and  Ex  parte  Nason,  70 
Me.  363.  The  United  States  Bankrupt  Act  of  1867,  §  21,  U.  S.  R.  S. 
§  5074,  is  construed  to  allow  the  right  in  terms.  Emery  v.  Canal  Nat. 
B'k,  3  Cliff.  507,  collecting  the  cases,  and  repeating  some  of  the  general 
arguments  at  length. 

Formerly  an  arbitrary  rule  was  worked  out  by  degrees  in  England 
that  the  creditor  must  elect.  Ex  parte  Rowlandson,  3  P.  AVms. 
405  ;  Ex  parte  Moult,  Mont.  321  ;  Goldsmid  v.  Cazenove,  7  II.  L.  C. 
785.  But  this  rule,  after  being  disapproved  by  the  most  eminent  judges, 
Ex  parte  Bevan,  9  Ves.  223:  10  Ves.  107;  Story  on  Partn.  7th  ed. 
§§  384-386  ;  Eden  on  Bank.  2d  ed.  181.  has  been  done  away  with  by  stat- 
ute in  cases  like  the  present.  Ex  parte  Honey,  L.  R.  7  Ch.  178.  In  view 
of  the  modern  decisions,  and  the  general  agreement  of  opinion,  we  think 
it  unnecessary  to  argue  elaborately  for  the  right  of  a  creditor  who  had 
required  two  contracts,  binding  two  distinct  estates,  to  insist  upon  both. 
See  further  Fuller  v.  Hooper,  3  Gray,  334;  Vanuxem  v.  Burr,  151 
Mass.  386  ;  Turner  v.  Whitmore,  63  Me.  526  ;  Miller's  River  Nat.  Bk. 

v.  Jefferson,  138  Mass.  111. 

Decree  of  Court  of  Insolvency  affirmed.1 

1  In  Ex  parte  Nason,  70  Me.  .303,  the  court  said  :  "  We  havo  no  hesitation  in  adopt- 
ing the  doctrine  of  the  federal  courts  upon  this  question,  and  if  the  question  was  un- 
touched by  authority  we  do  not  see  how  a  contrary  conclusion  could  logically  be 
reached.  A  joint  and  several  note  contains  in  one  instrument  two  contracts,  Beparate 
and  distinct  from  each  other.  The  makers  promise  as  a  firm  and  also  as  individuals. 
In  a  legal  sense, the  parties  to  the  two  contracts  arc  nut  the  same  hut  different  parties. 
The  parties  meant  something  by  this  form  of  double  contract.  The  holder  intended 
to  have  a  security  upon  more-  than  one  estate.  The  presumption  is  that  tin-  creditor 
would  not  have  paid  the  consideration  he  did,  had  it  not  been  upon  the  expectation  oi 
a  double  security." 


474  RIGHTS   AND   EEMEDIES    OF   CREDITORS.  [CHAP.  V. 


HILL   et  al.    v.  CORNWALL  &   BRO.'S  ASSIGNEE   et  al. 
95  Ky.  512:  26  S.  W.  540.     1894. 

Pryor,  J.  In  the  month  of  March,  1891,  Cornwall  &  Bro.  made 
an  assignment  for  the  beneiit  of  creditors,  and  each  member  of  the  firm 
also  made  an  individual  assignment  for  the  same  purpose.  The  firm 
was  composed  of  William  Cornwall  and  his  two  sons,  William  Cora- 
wall,  Jr.,  and  Aaron  W.  Cornwall.  The  business  of  the  firm  was  the 
manufacture  of  soap  and  candles,  and,  being  largely  indebted,  indi- 
vidually as  well  as  partners,  many  questions  have  arisen  touching  the 
character  of  the  assets,  and  the  mode  of  payment  or  distribution  of 
the  trust  fund  between  creditors.  The  Louisville  Trust  Company  was 
made  the  assignee,  and  filed  this  petition  below,  asking  advice  as  to 
the  administration  of  the  several  trusts,  and  for  a  final  settlement  of 
its  accounts  as  assignee.  .   .  . 

On  the  appeal  of  the  Merchants'  National  Bank,  a  creditor  of  the 
firm  of  Cornwall  &  Bro.,  the  question  as  to  the  right  of  the  bank  to 
make  double  proof  arises  ;  that  is,  its  right  to  prove  the  debt  not  onlv 
against  the  firm  of  Cornwall  &  Bro.,  but  also  against  the  individual 
assets  of  William  Cornwall,  Sr.,  William  Cornwall,  Jr.,  and  Aaron 
Cornwall,  all  three  of  whom  constituted  the  firm  of  Cornwall  &  Bro. 
It  is  said  (and  this  is  true)  that  there  was  not  a  joint  assignment 
of  both  partnership  and  individual  property,  but  separate  assignments, 
first  by  the  partnership,  and  then  separate  assignments  by  each  mem- 
ber of  his  individual  estate  ;  and  the  question  asked  is,  who  are  the 
cestuis  que  trustent  in  these  several  deeds?  and  the  answer  must  be 
that  all  the  creditors  are  the  beneficiaries  in  each  deed.  But  the  ques- 
tion again  arises,  how  are  the  assets  from  each  assignment  to  be 
distributed  between  partnership  and  individual  creditors?  We  can  per- 
ceive no  distinction  between  a  joint  assignment,  where  the  firm  assets 
and  the  individual  assets  are  assigned,  and  the  case  where  each  make 
separate  assignments.  The  equitable  rule  is  the  same,  and  must  be 
applied  in  the  same  way.  It  is  conceded  that,  at  law,  firm  creditors 
have  no  lien  upon  the  firm  assets,  and  no  contract  right  by  which  an 
individual  creditor  must  stand  aside  until  the  partnership  creditor  is 
satisfied,  but  a  court  of  equity  gives  to  the  firm  creditor  a  lien  through 
the  partners,  who  have  the  right  to  demand  the  payment  of  firm  debts 
before  the  partnership  property  can  be  applied  to  the  individual  debt 
of  one  of  the  partners  ;  and  this  rule  of  equitj-  giving  the  creditor  of. 
the  firm  priority  over  the  individual  creditor  as  to  the  firm  assets  was 
so  extended  by  this  court  in  the  case  of  Bank  v.  Keizer,  2  Duv.  1G9,  as 
to  compel  the  creditor  who  elects  to  accept  the  benefit  of  this  equitable 
rule  to  remain  still  until  the  individual  creditor,  out  of  the  individual 
assets,  is  made  equal  with  him.  Counsel  for  the  bank  have  cited  many 
authorities  in  other  States,  including  those  from  the  federal  judiciary, 
establishing  a  different  doctrine,  and  present  with  much  force  a  line  of 


§  4.]  ORDER    OF    PROOFS    AND    MARSHALLING.  475 

reasoning  sustaining  their  view  of  this  equitable  doctrine.  The  rule  in 
the  case  of  Bank  v.  Keizer  Las  been  followed  or  recognized  in  this  State 
in  several  reported  cases,  viz. :  Whitehead  v.  Chadwell,  2  Duv.  432  :  in 
the  case  of  Sprattfs  Kx'r  v.  Bank,  reported  in  84  K\ .  85  ;  and  that  of 

Bank  v.  Kenney.  reported  in  79  Ivy.  133.  It  was  not  intended  in  the 
last-named  case  to  depart  from  the  doctrine  as  settled  in  Bank  v. 
Keizer,  and  for  the  reason  that,  if  an  equity  is  created  or  flows  from  a 
rule  of  right  that  gives  oue  set  of  creditors  priority  in  the  payment  of 
debts  out  of  one  class  of  assets,  those  who  are  required  to  look  for  pay- 
ment to  another  and  different  class  of  assets  should  at  least  be  made 
equal  before  those  electing  to  take  this  priority  should  share  in  the 
general  distribution. 

A  joint  and  several  liability  may  afford  an  equitable  reason  for  giving 
a  lien,  or  rather  priority,  to  the  partnership  creditor  in  the  distribution 
of  the  partnership  assets,  but  he  may  elect  not  to  assert  this  claim,  but 
share  with  the  individual  creditor  in  the  distribution  of  the  entire  ass  ts; 
and  to  give  the  firm  creditor  priority  in  the  first  place,  and  then  allow 
him  to  share  with  the  individual  creditor  in  the  distribution  of  the  indi- 
vidual assets,  is  neither  equitable  nor  just.  The  firm  creditor  in  fact 
credits  the  firm  ;  and.  while  each  member  is  individually  liable  also, 
the  creditor  is  not  allowed  his  priority  because  he  has  taken  the  pre- 
caution to  have  all  the  firm  bound,  but  for  the  reason  the  partners  have 
the  right  to  have  the  firm  assets  applied  to  the  payment  of  the  partner- 
ship debts.  The  equity  of  the  creditor  comes  in  this  way.  and  equity 
must  come  to  the  relief  of  those  who  are  required  to  look  on  until  the 
firm  creditor  has  been  paid.  We  adhere  to  the  rule  as  settled  by  this 
court,  however  high  the  authority  elsewhere.   .  .  . 


GIBBS  v.  HUMPHREY. 

91  Wis.  Ill:  64  X.  W.  750.  1895. 
On  the  5th  day  of  November,  1891,  Alfred  J.  Goss  and  J.  D.  Put- 
nam were,  and  had  been  continuously  for  some  years  prior  thereto, 
doing  a  milling  business  as  co-partners  under  the  firm  name  of  J.  D. 
Putnam  &  Co.  at  River  Falls,  Pierce  County,  Wis.  On  the  day  par- 
ticularly named  the  partnership  was  dissolved,  and  it  was  agreed  that 
the  business  should  thereafter  be  continued  by  J.  B.  Goss.  as  .1.  15.  (Joss 
&  Co.,  and  that  he  should  assume  all  the  liabilities  of  the  old  firm,  and 
have  the  firm  assets.  Pursuant  to  the  aforesaid  agreement,  the  part- 
nership property  was  conveyed  to  J.  B.  Goss,  being  first  transferred  to 
A.  J.  Goss,  but  for  what  reason  does  not  clearly  appear,  and  by  him 
to  J.  B.  Goss.  Immediately  after  the  dissolution  of  the  old  linn,  the 
parties  caused  the  following  notice  thereof,  and  of  the  fact  that  the  busi- 
ness would  thereafter  be  conducted  by  J.  B.  Goss  &  Co.,  to  be  pub- 


476         .  EIGHTS   AND   REMEDIES    OF   CREDITORS.  [CHAP.  V. 

lished  in  the  local  paper :  "  Notice  is  hereby  given  that  the  co-partner- 
ship formerly  existing  between  the  undersigned,  J.  D.  Putnam  and 
Alfred  J.  Goss,  under  the  firm  name  of  J.  D.  Putnam  &  Co.,  is  this 
day  dissolved  by  mutual  consent,  and  the  business  will  in  future  be 
carried  on  under  the  firm  name  of  J.  B.  Goss  &  Co.,  who  will  settle  all 
claims  of  the  late  co-partnership.  November  3d,  1891.  [Signed]  J.  D. 
Putnam.  Alfred  J.  Goss."  The  business  was  thereafter  conducted 
without  any  information  to  the  public  of  a  change  in  the  members  of 
the  firm,  except  such  as  was  contained  in  the  published  notice,  till 
June,  1893,  when  A.  J.  Goss,  who  was  the  proprietor  of  a  bank  at 
Hudson,  "Wis.,  failed,  and  J.  B.  Goss  also  failed.  Each  made  an  as- 
signment for  the  benefit  of  creditors,  —  the  former  to  H.  L.  Humphrey, 
the  respondent.  At  the  time  of  such  failures  J.  B.  Goss  was  indebted 
to  A.  J.  Goss,  at  the  bank,  to  the  amount  of  $45,000,  which  included 
a  large  amount  of  old  firm  indebtedness,  existing  at  the  bank  at  the 
time  of  the  dissolution,  and  thereafter  assumed  by  J.  B.  Goss,  and  the 
balance  was  for  money  loaned  by  A.  J.  Goss  to  enable  the  former  to 
carry  out  his  agreement  to  assume  and  pa}-  the  J.  D.  Putman  &  Co. 
debts,  and  to  carry  on  the  business.  J.  B.  Goss  was  a  son  of  A.  J. 
Goss,  and  was  not  supposed  at  an}-  time  to  be  the  owner  of  much  prop- 
erty or  means  of  any  kind,  but  the  father,  up  to  the  time  of  the  assign- 
ment, was  supposed  to  be  very  wealthy.  Substantially  all  the  creditors 
of  the  old  firm,  and  also  of  J.  B.  Goss  &  Co.,  prior  to  the  assignment, 
supposed  that  A.  J.  Goss  was  a  member  of  the  new  firm.  Defendant 
filed  a  claim,  in  the  assignment  proceedings  of  J.  B.  Goss,  for  the 
indebtedness  of  J.  B.  Goss  &  Co.  to  his  assignor. 

tSpooner,  Sanborn,  Kerr,  &  Spooner,  for  appellant. 

F.  M.  White,  for  respondent. 

Marshall,  J.  The  question  here  presented  is,  can  the  appellant, 
representing  the  claim  of  his  assignor,  prove  up  such  claim  in  compe- 
tition with  the  other  creditors  who  dealt  with  J.  B.  Goss  as  J.  B.  Goss 
&  Co.?  The  trial  court  found  that,  as  between  A.  J.  Goss  and  the 
creditors  of  J.  B.  Goss,  the  two,  by  reason  of  holding  out,  must  be 
considered  as  partners  under  the  name  of  J.  B.  Goss  &  Co. ;  that  A.  J. 
Goss  and  his  assignee,  by  reason  of  the  facts,  are  estopped  from  setting 
up  to  the  contrary.  The  conclusion  reached  by  this  court  in  Thayer 
v.  Goss,  ante,  90,  is  conclusive  in  favor  of  the  finding  of  the  court 
below  on  this  point.  The  published  notice  of  dissolution  was  not  only 
not  notice  that  A.  J.  Goss  had  retired,  but  from  it  all  persons  had 
a  right  to  assume  that  he  occupied  the  same  position  in  the  new  firm 
of  J.  B.  Goss  &  Co.  that  he  did  in  the  old  firm  of  J.  D.  Putnam  &  Co. 
Respondent  relies  upon  the  notice  of  dissolution,  and  change  of  the 
firm  name.  In  Thread  Co.  v.  TVortendyke,  24  N.  Y.  550,  where  the 
precise  question  was  presented  in  respect  to  a  similar  notice,  the  rule 
was  stated  as  follows  :  "  When  notice  of  change  of  firm  name  is  relied 
upon  to  exonerate  a  retiring  partner,  such  change  must  show  that  he 
has  withdrawn  from  the  business.     A  change  not  indicating  this  is  in- 


§  4.]  ORPER    OF   PROOFS    AXP    MARSHALLING.  477 

sufficient  to  put  dealers  upon  inquiry.  They  may  safely  assume,  until 
they  have  notice  to  the  contrary,  that  all  the  former  partners,  not  ap- 
parently affected  by  the  change  of  name,  yet  remain  in  the  business." 
Numerous  authorities  might  be  cited  to  sustain  the  rule  thus  stated, 
and  we  venture  the  assertion  that  no  reputable  authority  can  be  found 
to  the  contrary. 

The  general  rule  is  that  the  individual  partner  cannot  himself  prove 
against  the  joint  estate  in  competition  with  creditors  of  the  firm.  Coll  v. 
Partn.  §  921  ;  Burrill,  Assignm.  ^  179  :  Peters  v.  Bain,  133  U.  S.  670. 
This  is  upon  the  ground  that  he  himself  is  liable  to  the  firm  creditors, 
and  cannot  be  permitted  to  diminish  the  firm  assets  to  the  prejudice 
of  those  who  are  not  only  creditors  of  the  firm  but  of  himself.  Lindl. 
Partn.  721.  In  case  of  an  ostensible  partnership  where  there  is  a  gen- 
eral holding  out,  as  in  this  case,  the  same  reasoning  will  necessarily 
apply.  The  ostensible  partner  is  liable  to  the  firm  creditors  the  same 
as  if  he  was  a  partner  in  fact.  There  is  no  difference.  In  re  Row- 
land, 1  Ch.  App.  421  ■  Ex  parte  Ilayman,  In  re  Pulsford,  8  Ch.  Div. 
11.  Therefore,  neither  A.  J.  Goss  nor  his  assignee  can  come  in  and 
prove  against  the  ostensible  firm  of  J.  B.  Goss  &  Co..  and  diminish 
the  assets  to  the  prejudice  of  those  who  are  not  only  creditors  of  such 
ostensible  firm,  but  of  A.  J.  Goss  himself. 

The  rule  as  stated  is  conceded  by  appellant's  counsel,  but  they  urge 
the  exception,  well  known  to  and  recognized  by  the  English  courts, 
that,  "when  one  or  more  members  of  a  firm  carry  on  a  distinct  trade, 
proof  will  be  admitted  between  the  estate  of  the  general  and  the  par- 
ticular firm,  pari  passu  with  all  the  creditors,  in  all  cases  where  the  debt 
has  arisen  from  goods  furnished  by  one  firm  to  the  other,  in  a  manner 
as  if  the}*  had  been  utterly  unconnected  in  trade;  but  that,  except  in 
the  case  of  bankers,  this  rule  will  not  be  applicable  when  the  debt  has 
arisen  only  from  money  advanced  by  one  firm  to  the  other."  Collv. 
Partn.  §  1004,  and  cases  cited.  The  learned  circuit  judge  found  that 
the  debt  did  not  accrue  from  the  loan  of  money  b}-  A.  J.  Goss  in  the 
regular  course  of  his  separate  business,  and  in  a  manner  as  if  such 
separate  business  was  entireby  unconnected  with  the  business  of  J.  B. 
Goss  &  Co.,  but  that  the  whole  indebtedness  accrued  in  an  effort  to 
wind  up  the  old  business  of  J.  D.  Putnam  &  Co.;  and  this  finding  is 
fairly  supported  by  the  evidence.  It  follows  that  a  discussion  of  the 
question  of  whether  the  exception  to  the  general  rule  mentioned  is  rec- 
ognized in  this  country  would  be  needless,  and  that  the  order  appealed 
from  should  be  affirmed. 

The  order  appealed  from  is  affirmed. 


478  EIGHTS   AND    REMEDIES    OF   CREDITORS.  [CHAP.  V. 


McCRUDEN  v.   JONAS   et  al.     YETTA   GREENBOUM'S 

APPEAL. 

173  Pa.  St.  507:  34  At.  224.     1896. 

McCollum,  J.  The  fund  for  distribution  was  created  by  a  receiver's 
sale  of  the  property  of  the  Parisian  Cloak  &  Suit  Company.  It  is  not 
sufficient  to  pay  the  debts  of  the  compan}'  in  full,  and  we  are  therefore 
required  to  consider  and  determine  on  this  appeal  whether  Yetta 
Greenboum  is  entitled  to  participate  in  it  on  the  footing  of  the  other 
creditors.  To  substantiate  her  claim  that  she  is,  she  presents  three 
notes  made  by  the  Parisian  Cloak  &  Suit  Company  on  the  loth  of 
April,  1893,  to  the  order  of  I.  Jonas  &  Co.,  from  whom  she  received 
them,  duly  indorsed  as  collateral  security  for  their  pre-existing  indebt- 
edness to  her.  It  is  conceded  that  the  notes  present  a  bona  fide 
indebtedness  of  the  makers  to  the  payees,  and  that  she  has,  by  virtue 
of  them,  the  same  rights  in  the  distribution  of  the  fund  in  question 
that  they  gave  to  the  parties  to  whose  order  the}'  were  drawn.  In 
order  to  make  her  position  in  the  distribution  clear,  it  is  necessary 
to  state  the  material  facts  affecting  it,  and  these  are  as  follows  :  The 
place  of  business  of  I.  Jonas  &  Co.  was  in  Chicago,  111.,  and  that  of 
the  Parisian  Cloak  &  Suit  Company  was  in  Pittsburg,  Pa.  All  the 
members  of  the  firm  of  I.  Jonas  &  Co.  were  members  of  the  Parisian 
Cloak  &  Suit  Company,  and  liable  for  the  debts  of  the  latter  as  well  as 
for  the  debts  of  the  former.  In  the  latter  there  was  but  one  person 
who  was  not  a  member  of  the  former,  and  he  was  not  intrusted  with 
the  management  of  the  finances  of  his  firm,  nor  authorized  to  sign  bills 
and  notes  for  it.  These  powers  were  vested  in  the  other  members  of 
his  firm,  who,  as  we  have  seen,  constituted  the  partnership  of  I.  Jonas 
&  Co.  William  Greenboum,  the  husband  of  Yetta  Gi-eenboum,  was  a 
member  of  both  firms,  and  after  his  death  in  October,  1891,  their 
daughter,  Mrs".  Estella  Sommers,  purchased  the  interest  of  his  estate 
in  each  of  them,  and  thenceforth  possessed  and  exercised  the  rights 
and  powers  in  the  management  of  them  that  he  had  and  exercised  in 
his  lifetime.  Isador  Jonas  was  a  son-in-law  of  Mrs.  Yetta  Green- 
boum, and,  as  she  had  a  daughter  and  son-in-law  in  each  firm,  it  is  not 
surprising  that  she  had  the  knowledge  respecting  the  management 
and  status  of  both  firms  that  she  evinced  in  her  deposition.  As  she 
was  a  creditor  of  I.  Jonas  &  Co.,  and  held  the  notes  of  the  Parisian 
Cloak  &  Suit  Company  as  collateral  security  for  their  debt,  she  was 
interested  in  acquiring  this  knowledge,  and  her  possession  of  it  may 
have  had  some  connection  with  the  fact  that  she  did  not  accept  the 
notes  in  payment  or  satisfaction  of  the  debt  which  the  payees  therein 
owed  her.  Two  of  the  notes  were  expressly  payable  at  the  store  of  the 
makers,  in  Pittsburg,  and  the  other  was  impliedly  so.  True,  the  place 
of  payment  was  not  named  in  it.  but  the  omission  to  name  it  was, 
under  the  circumstances  surrounding  the  transaction,  presumably  an 


§  4.]  ORDER   OF   PROOFS   AXD    MARSHALLING.  47C 

inadvertence.  The  notes  were  made  and  dated  at  the  same  time  and 
place,  with  the  same  purpose  in  view;  and  they  were  promptly  passed 
by  the  payees  to  their  creditor,  who  knew  that  the  place  of  business  of 
the  makers  was  in  Pittsburg.  It  is  said  in  volume  2.  p.  328,  Am.  & 
Eng.  Enc.  Law,  that,  "  If  no  place  of  payment  is  named  in  the  note,  it 
is  understood  to  be  the  place  of  resilience  of  the  maker,"  and  that  "It 
cannot  be  presumed  that  the  place  of  payment  is  the  place  of  date, 
though  some  cases  hold  that,  in  the  absence  of  any  express  provision 
on  this  point,  the  intent  was,  prima  fade^  to  pay  where  the  note  was 
made."  In  Oxnard  v.  Varnum,  111  Pa.  St.  193,  it  is  said  that  "the 
making  and  dating  of  a  note  at  a  particular  place  are  not  equivalent  to 
making  it  payable  there  ; "  but  it  is  proper  to  state  that  the  action  was 
by  the  second  indorsee  against  the  first  indorser,  and  involved  the  duty 
of  the  holder  in  regard  to  presentment  and  demand  at  the  residence  or 
place  of  business  of  the  maker.  If,  however,  there  is  a  presumption 
that,  in  the  absence  of  an  express  provision  on  the  subject,  the  place 
of  date  is  the  place  of  payment,  we  agree  with  the  learned  auditor  and 
the  learned  court  below  that  it  cannot  prevail  against  the  facts  and 
circumstances  connected  with  and  surroundinsr  the  execution  and  de- 
livery  of  the  note  in  question.  We  conclude,  therefore,  that  Mrs. 
Greenboum  occupies  no  higher  ground  in  the  distribution  than  I.  Jonas 
&  Co.  would  have  occupied  jiad  the}-  retained  the  notes,  and  that  her 
claim  upon  the  fund  must  be  passed  upon  in  accordance  with  the  laws 
of  Pennsylvania  governing  the  distribution  of  the  assets  of  an  insolvent 
partnership. 

The  learned  court  below,  in  awarding  to  Mrs.  Greenboum  the  bal- 
ance of  the  fund  remaining  after  paying  thereout  the  claims  of  the 
other  creditors  in  full,  gave  her  all  that  she  was  entitled  to,  and  all 
that  the  parties  to  whose  rights  she  succeeded  could  possibly  have 
received  from  it.  As  they  were  liable  for  all  the  claims  of  the  other 
creditors,  they  could  not  have  participated  in  the  distribution  until 
those  claims  were  satisfied.  This  is  a  proposition  in  accordance  with 
equity,  and  well  sustained  by  the  decisions  of  this  court.  Erb's  Ap- 
peal, 2  Pen.  &  W.  296  ;  Ilimes  v.  Barnitz,  8  Watts,  39  ;  Worrell's 
Appeal,  41  Pa.  St.  524 ;  and  Datesman's  Appeal,  77  Pa.  St.  243. 
There  is  nothing  in  the  act  of  April  14,  1838,  which  sustains  the  con- 
tention that  an  insolvent  partnership,  composed  of  three  of  the  four 
members  of  another  insolvent  partnership,  can,  as  a  creditor  of  the 
latter,  share  equally  with  its  other  creditors  in  the  distribution  of  its 
assets.  This  act  has  been  severely  and  justly  criticised  in  most,  if  not 
all,  of  the  cases  in  which  it  has  been  considered,  but  it  has  never  yet 
produced  such  results  as  are  contended  for  in  this  case.  Tassey  v. 
Church,  G  Watts  &  S.  465  ;  Pennock  v.  Swayne,  Id.  239  ;  and  Allen  v. 
Erie  City  Bank,  57  Pa.  St.  129. 

Decree  affirmed,  and  appeal  dismissed,  at  the  costs  of  the  appellant. 


480  EIGHTS   AND   REMEDIES    OF   CREDITORS.  [CHAR  v 

In   re   NORMAN    B.   FOOT   et   al. 

12  Nat.  Bankruptcy  Reg.  337.     1875. 

Wallace,  J.  For  the  purpose  of  raising  money  for  the  firm  of 
Foot,  Doud,  &  Co.,  the  above-named  bankrupt,  Foot,  one  of  the  firm, 
indorsed  their  paper,  and  pledged  securities  belonging  to  himself  indi- 
vidually as  collateral  for  payment  of  the  paper.  After  the  adjudica- 
tion of  bankruptcy  herein  the  holders  of  the  notes  sold  the  securities 
thus  pledged,  and  realized  upon  the  sale  the  sum  of  eighteen  thousand 
two  hundred  and  eighty-one  dollars,  being  one  hundred  and  four  dol- 
lars in  excess  of  the  amount  due  upon  the  notes.  The  separate  cred- 
itors of  Foot  now  represent  that  his  separate  estate  is  insufficient  to  pay 
his  individual  debts,  and  insist  that  the  amount  realized  from  the 
securities  thus  sold  be  appropriated  from  the  fund  belonging  to  the 
joint  estate  to  that  of  the  separate  estate  of  Foot.  They  maintain 
that  it  was  the  duty  of  the  assignee  in  bankruptcy  to  have  exonerated 
the  separate  estate  from  the  lien  of  the  pledgees  out  of  the  funds  of  the 
joint  estate  ;  and  they  urge,  that  in  any  event,  Foot,  as  surety  for  the 
firm,  when  the  notes  were  paid  by  the  sale  of  his  property,  became 
subrogated  to  the  claims  of  the  holders  of  the  notes,  and  entitled  to 
prove  the  amount  of  the  notes  against  the  joint  estate,  and  that  this 
demand  enures  to  the  benefit  of  his  separate  estate,  which  should  be 
credited  by  the  assignee  with  ratable  dividends  on  the  amount. 

There  are  technical  difficulties  in  the  way  of  obtaining  relief  upon 
either  of  these  theories.  The  assignee  would  not  have  been  justified 
in  applying  the  moneys  of  the  joint  estate  to  discharge  a  lien  upon  the 
property  of  the  separate  estate,  even  where  the*  lien  was  created  for 
the  benefit  of  the  firm  ;  and  if  Foot  as  surety  became  subrogated  to 
the  rights  of  the  holders  of  the  notes,  and  therefore  entitled  to  prove 
their  amount,  the  rule  which  precludes  a  partner  from  proving  his 
individual  debt  in  competition  with  the  joint  creditors  would  defeat  the 
separate  estate  from  deriving  any  benefit  through  the  claim  of  Foot. 
But  it  seems  clear  that  the  equities  of  the  separate  creditors  can  be 
worked  out  upon  familiar  principles,  and  a  result  attained,  which,  in 
view  of  the  condition  of  the  two  estates,  is  highly  desirable. 

Where  there  are  two  classes  of  creditors  having  a  common  debtor 
who  has  several  funds,  and  one  class  of  creditors  can  resort  to  all  the 
funds  while  the  other  can  resort  only  to  part  of  them,  the  former  shall 
take  payment  out  of  the  fund  to  which  they  can  resort  exclusively,  so 
that  both  classes  may  be  protected  ;  and  if  the  former  resort  to  the 
fund  common  to  both  classes,  to  the  loss  of  the  latter,  the  latter  are 
entitled  to  be  substituted  to  the  extent  of  the  deprivation  to  which  they 
have  been  subjected  in  the  place  of  the  former.  This  principle  has 
been  frequently  applied  where  specific  liens  exist  in  favor  of  different 
creditors  upon  property  of  the  same  debtor;  and  the  rule  is  the  same 
where  the  parties  are  creditors  of  different  debtors,  where  as  between 


S  4.]  ORDER   OF   PROOFS    AND    MAKSHALLING.  481 

the  debtors  equity  demands  that  one  of  them  should  discharge  the  debt 
in  exoneration  of  the  other.  Dorr  v.  Shaw,  4  Johns.  Ch.  17;  Story 
Eq.  §§  642,  643;  Mc  parti  Kendall,  17  Ves.  513;  Net!  v.  Miller,  8 
Barr,  347;  Stirling  v.  Brightbill,  5  Watts.  229.  The  doctrine  applies 
in  all  eases  of  marshalling  equitable  assets;  and  its  application  to 
assets  in  bankruptcy,  which  are  to  be  administered  upon  equitable 
principles,  is  peculiarly  appropriate. 

In  the  present  case,  after  the  adjudication  of  bankruptcy  the  holders 
of  the   notes   might  have   surrendered   the   collaterals  and  resorted  to 
either  of  the  funds  to  obtain  payment;  as  creditors  of  the  firm  they 
could  have  proved  against  and  shared  in  the  joint  estate,  and  as  cred- 
itors of  Foot  they  could  have  proved  against  and  shared  in  his  separate 
estate;   and  if  they  had  surrendered,  the  collaterals  would  have  enured 
to  the  benefit  of  the  separate  estate,  because  the  firm  were  the  primary 
debtors  and  Foot  was  a  surety.     The  holders  of  the  notes   could  not 
have  been  compelled  to  elect  as  to  which  fund  they  should  pursue,  the 
rule  in  England,  which  requires  creditors  both  of  the  joint  and  separate 
estate  in  bankruptcy  to  elect,  not  obtaining  here.     Ex  parti  Farnuin,  G 
Bost.  L.  Rep.  21  ;  Meade  v.  Nat.  Bank  of  Fayetteville,  2  N.  B.  R.  17:'.  ; 
Emery  v.  Canal  Nat.  Bank,  7  N.  B.  R.  217.     The  joint  creditors  therefore 
could  not  have  been  heard  to  complain  if  the  holders  of  the  notes  had 
chosen  to  obtain  satisfaction  out  of  the  joint  estate,  and  no  equities  exist 
on  their  part  to  countervail  these  of  the  separate  creditors  of  Foot.    On 
the  other  hand,  if  the  holders  of  the  notes  had  surrendered  their  col- 
laterals and  resorted  to  the  separate  estate  of  Foot  by  proving  their 
claims  in  bankruptcy,  the  creditors  of  his  separate  estate  would  have 
been  entitled  to  be  substituted  in  the  place  of  the  holders  of  the  notes, 
and  allowed  to  prove  the  notes  against  the  joint  estate. 

The  rights  of  the  parties  are  not  changed  because  the  holders  of  the 
notes  satisfied  them  by  a  sale  of  the  securities,  instead  of  resorting  to 
the  joint  estate  in  bankruptcy.     By  the  course  taken  the  separate  estate 
has  been  diminished  to  the  extent  that  satisfaction  might  have  been 
obtained  from  the  joint  estate,  and  to  that  extent  the  separate  creditors 
have  been  deprived  of  a  fund  to  which  they  were  entitled  to  equitable 
priority,  as  against  a  class  of  creditors  who  had  resort  to  another  fund, 
which  was,   as  between  the  debtors,   the  primary  fund   for  payment. 
Upon  the  principles  referred  to,  the  separate  creditors  are  to  be  sub- 
stituted to  the  rights  of  the  holders  of  the  notes  to  enforce  payment 
from  the  joint  estate  in  bankruptcy.     The  technical  satisfaction  of  the 
notes  by  the  proceeds  of  the  sale  of  the  securities  does  not  stand  in 
the  way,  for  payment  will  not  be  permitted  in  equity  to  operate  as  an 
extinguishment  as  against  those  equitably  entitled  to  substitution  in 
the  place  of  the  party  receiving  payment.     Eddy  v.  Traver,  6  Paige, 
521;    Morris   v.  Oakford,   9  Barr,  498;    Richardson   v.   Washington 
Bank,  3  Met.  536. 

Applying  these  principles  to  the  present  case,  a  result  is  reached 
which  does  no  injustice  to  either  class  of  creditors,  and  which  affords  a 


482 


EIGHTS    AND    REMEDIES   OF   CREDITORS.  [CHAP.  V. 


signal  illustration  of  the  benign  vigor  of  the  rules  of  equity.  The 
assets  of  the  primary  debtors  will  be  appropriated  to  the  ratable  pay- 
ment of  all  their  creditors,  and  those  of  the  separate  partner  to  his 
creditors  ;  while  the  holders  of  the  notes,  protected  in  the  exercise  of 
their  rights,  will  have  so  enforced  them  as  not  needlessly  to  prejudice 
the  rights  of  other  creditors. 

A  decree  is  ordered,  that  the  assignee  appropriate  to  the  separate 
estate  of  Foot  the  surplus  arising  upon  the  sale  of  the  securities,  and 
such  further  sum  as  may  arise  from  the  dividends  of  the  joint  estate, 
as  upon  a  debt  proved  against  such  joint  estate  of  eighteen  thousand 
one  hundred  and  seventy-seven  dollars  accruing  as  of  the  date  of  the 
sale  of  the  securities. 


HAINES    &   CO.'S   ESTATE.     GROVE'S   APPEAL. 

176  Pa.  St.  354:  35  At.  237.     1896. 

Wood,  Brown,  Henderson,  Jenkins,  Crowe,  Harper,  and  Wilson 
were  partners  in  Philadelphia,  in  the  firm  name  of  Wood,  Brown,  & 
Co.  Wood,  Brown,  Haines,  Bacon,  and  Whittaker  formed  a  limited 
partnership  under  the  name  of  Granville  B.  Haines  &  Co. ;  Bacon 
and  Whittaker  were  the  special  partners. 

In  March,  1894,  both  firms  made  assignments  for  the  benefit  of 
creditors.  It  was  then  discovered  that  Wood  and  Brown,  without 
the  knowledge  and  consent  of  their  partners  in  either  firm,  had  appro- 
priated to  the  use  of  Haines  &  Co.  $175,000  of  cash  and  merchandise 
belonging  to  Wood,  Brown,  &  Co.  This  had  been  accomplished  and 
concealed  by  means  of  a  series  of  fictitious  entries  in  the  books  of 
both  firms,  the  effect  of  which  was  that  the  $175,000  continued  to 
appear  as  an  asset  on  the  balance  sheets  and  reports  to  commercial 
agencies  of  Wood,  Brown,  &  Co.,  while  in  reality  it  had  been  in- 
corporated into  the  assets  of  Haines  &  Co.  For  this  $175,000  the 
assignee  of  Wood,  Brown,  &  Co.  made  claim  against  the  estate  of 
Haines  &  Co. 

The  auditor  rejected  this  claim  on  the  ground  that  the  two  firms 
were  practically  one.  This  was  confirmed  by  Arnold,  J.,  and  the 
assignee  of  Wood,  Brown,  &  Co.  appealed. 

P.  Prichard,  J.  G.  Johnson,  and  G.  L.  Crawfor,  for  appellant. 

Geo.  P.  Rich,  H.  C.  Boyer,  C.  Piddle,  W.  B.  Smith,  G.  T. 
Bispham,  W.  S.  Divine,  and  S.  P.  Hueij,  for  various  appellees. 

Mitchell,  J.  (after  deciding  that  the  two  firms  were  distinct  part- 
nerships). It  is  urged  that  the  assignee  (appellant)  is  not  entitled 
to  prove  against  the  fund  until  the  accounts  between  the  partners  of 
Wood,  Brown,  &  Co.  shall  have  been  settled,  and  then  only  for  the 
amount  that  may  be  found  due  to  the  partners  other  than  Wood  and 
Brown ;  in  other  words,  that  Wood  and  Brown,  being  partners  in  the 
debtor  firm,  cannot  be  creditors  also  of  that  firm  as  against  other 


§4-] 


OKDER   OF   PROOFS    AND   MARSHALLING.  483 


creditors.     But  this  argument  overlooks  the  effect  of  the  insolvency 
of  Wood,  Brown.  &  Co.     The  moment  that  fact  is  ascertained,   the 

creditors  acquire  a  right  to  all  the  assets  of  that  firm,  among  which, 
undoubtedly,  is  their  claim  against  Haines  &  Co.     If  Haines  &  Co. 
were  solvent,  there  could  be  no  question  of  the  validity  of  this  claim. 
Although  Brown  and  Wood   might  be  creditor   partners,    the    right 
would  be  in  the  creditors  of  Wood,  Brown.  &  Co.,  as  a  lirm,  without 
reference  to  the  status  of  the  individual  partners  in  either  firm  among 
themselves.     And  the  insolvency  of  Haines  &  Co.  dors  not  change 
the  rights  of  Wood,  Brown,  &  Co.'s  creditors.    As  to  their  respective 
creditors,  the  two  firms  are  separate  and  distinct  entities,    and   the 
assets  of  each  are  a  separate  fund  for  its  own  creditors,  jusl  as  the 
firm  assets  and  the  individual  property  of  the  partners  are  separate 
funds   for  partnership   and    individual   creditors    in   ordinary   cases, 
although  the  partners  are  equally  debtors  to  both.     Each  class  lias  a 
prior  claim  on  its  own  fund,  and  only  a  secondary  or  postponed  claim 
on  the  other  after  the  latter' s  preferred  creditors  are  satisfied. 

The  validity  of  the  appellant's  claim  on  its  merits  is  also  attacked. 
It  is  doubtful  if  any  such  question  is  really  before  us,  as  there  was 
no  exception  on  this  subject  in  the  court  below,  and,  of  course,  there 
is  no  complaint  by  the  appellant.     But,  to  avoid  all  further  difficulty, 
it  may  as  well  be  disposed  of.     The  auditor  finds  that  "  the  right  of 
Wood,  Brown,  &  Co.  to  recover  back  the  $75,000  paid  in  as  the  cap- 
ital of  Wood  and  Brown,  and  the  further  question  of  the 
of  the  transaction  by  which  the  charge  against  Haines  &  Co.  for 
$100,000  worth  of  merchandise  was  wiped  off  the  books  of  Wood, 
Brown,  &  Co.,  without  the  payment  of  any  consideration  whatever," 
depend  on  the  real  relation  of  the  two  firms  to  each  other.     As  we 
now  hold  that  the  relation  was  that  of  separate  debtor  and  creditor 
firms,  that  makes  an  end  of  this  contention.     The  use  of  the  firm's 
money  by  Wood  and  Brown  for  their  contribution  to  the  capital  of 
Haines  &  Co.,  and  the  debiting  of  their  firm  875,000  for  that  purpose 
on  Haines  &  Co.'s  books,  were  without  the  consent  or  knowledge  of 
the  other  partners,   and  therefore  unauthorized,    if  not  fraudulent. 
Calling  it  "  capital  "  on  the  books  of  Haines  &  Co.  did  uol  change  the 
character  of  the  act.     Haines  &  Co.  got  the  credit  in  their  accounts, 
without  being  entitled  to  it,  and  afterwards  charged  Wood,  Brown, 
&  Co.  in  the  same  way  with  $100,000  worth  of  merchand.se   which 
the  latter  never  bought  or  received.     No  subsequent  juggling  with 
the  accounts  in  the  books  could  make  these  anything  else  than  debts, 
or  amount  to  payment. 
Decree  reversed,  and  the  claim  of  appellant  directed  to  be  allowed. 


484  EIGHTS   AND   REMEDIES   OF   CREDITORS.  [CHAP.  V. 


PATTY-JOINER   CO.  et  al.  v.  CITY  BANK  et  al. 

41  S.  W.  (Tex.  Civ.  App.)  173.     1897. 

Lightfoot,  C.  J.  .  .  .  Under  the  fifth,  sixth,  and  ninth  assign- 
ments by  appellants  they  claim  that  the  court  erred  in  refusing  to 
enter  judgment  on  the  verdict  in  favor  of  plaintiffs  against  the 
assignee  and  the  sureties  on  his  bond  for  the  value  of  one-half  of  the 
cotton  purchased  by  Simpson  &  Fuller,  with  interest,  and  judgment 
against  the  City  Bank  of  Sherman  for  the  value  of  one-half  of  the 
cotton  transferred  by  Fuller  to  Simpson.  The  assignee,  by  cross 
assignment,  also  complains  at  the  refusal  of  the  court  to  render 
judgment  against  the  bank  for  the  value  of  one-half  of  the  cotton  of 
Simpson  &  Fuller.  In  this  connection,  appellee  J.  W.  Simpson  com- 
plains by  cross  assignments  of  error  at  the  judgment  of  the  court  in 
holding  that  the  partnership  between  Simpson  &  Fuller  for  the  pur- 
chase of  cotton  was  against  public  policy,  and  void,  and  for  render- 
ing judgment  against  J.  W.  Simpson  for  the  value  of  one-half  of  the 
cotton.  At  the  time  J.  F.  Fuller  made  the  assignment  for  the  benefit 
of  his  individual  creditors,  he  was  in  partnership  with  J.  W.  Simpson 
in  the  purchase  of  cotton.  At  the  time  of  the  assignment  of  his 
individual  assets,  he  transferred  to  his  partner,  J.  W.  Simpson,  all 
of  his  interest  in  150  bales  of  cotton  owned  by  the  firm,  in  order  that 
the  latter  might  pay  the  firm  debts.  The  partnership  was  indebted  to 
the  City  Bank  of  Sherman  for  money  advanced  to  buy  cotton.  Simp- 
son assumed  this  indebtedness,  sold  the  cotton,  and  paid  the  debt, 
and  still  lacked  a  small  amount  of  liquidating  it,  which  he  supplied 
from  his  own  means.  It  was  claimed  by  the  creditors  of  Fuller  that 
his  half  of  the  cotton  passed  by  the  assignment.  The  principle  is 
well  settled  that  one  partner  of  a  firm  has  no  power  to  assign  or  mort- 
gage the  partnership  assets  to  pay  or  secure  his  individual  debts  with- 
out the  consent  of  his  partner.  Johnston  v.  Shoe  Co.,  5  Tex.  Civ. 
App.  398;  Wiggins  v.  Blackshear,  86  Tex.  665.  He  could  assign 
his  interest  in  the  firm  assets  without  the  consent  of  his  partner,  but 
such  assignment  would  work  a  dissolution  of  the  partnership,  and  the 
assignee  would  take  such  interest  subject  to  the  settlement  of  the  part- 
nership debts.  There  being  a  partnership  between  Simpson  &  Fuller 
in  the  purchase  of  cotton  when  the  latter  made  the  deed  of  assignment 
for  the  benefit  of  his  individual  creditors,  even  if  he  had  included  in 
such  assignment,  without  Simpson's  consent,  all  of  his  interest  in  the 
partnership  cotton,  it  could  not  have  carried  anything  except  his 
interest  in  such  surplus,  if  any,  as  might  have  remained  after  wind- 
ing up  the  partnership  business  of  the  firm  of  Simpson  &  Fuller. 
There  were  not  enough  assets  to  pay  the  firm  debts,  so  that,  outside  of 
the  question  of  the  transfer  from  Fuller  to  Simpson  of  his  interest 
in  the  firm  cotton,  there  was  nothing  for  the  assignee  in  the  cotton  or 
its  proceeds.     But  it  appears  that  Fuller  made  no  attempt  to  include 


§  4.]  ORDER    OF    PROOFS   AND    MARSHALLING.  4S5 

in  his  assignment  any  of  the  cotton  owned  by  Simpson  &  Fuller. 
On  the  contrary,  he  transferred  to  his  partner,  with  notice  to  the 
assignee,  all  of  his  interest  in  the  cotton  for  the  purpose  of  being 
used  to  liquidate  the  linn  debts,  and  .Simpson  promptly  used  it  in 
payment  of  the  firm  debts.  In  the  absence  of  fraud,  this  transfer 
evidences  the  willingness  of  Fuller  that  the  firm  assets  should  be 
applied  by  his  partner  just  as  the  law  would  have  applied  them;  and 
the  individual  creditors  of  Fuller,  even  if  he  had  desired  them  to  do 
so,  could  not  have  appropriated  such  firm  assets  to  the  payment  of 
their  claims  without  .Simpson's  conseut. 

But  appellants  claim  that  the  above  rules  do  not  apply  in  this  case, 
because  the  contract  of  partnership,  as  well  as  the  contract  by  Simpson 
&  Fuller  with  the  bank,  whereby  the  latter  loaned  the  former  money 
with  which  to  buy  cotton,  were  void  as  against  public  policy.  This 
position  is  not  taken  by  the  parties  in  the  pleadings,  and  there  is  no 
allegation  upon  which  it  is  based ;  but  upon  the  trial  of  the  case,  after 
the  court  had  heard  the  testimony,  it  submitted  to  the  jury  a  special 
issue  upon  the  subject,  and  under  their  verdict  found  that  the  con- 
tract of  partnership  between  Simpson  &  Fuller  was  void  as  against 
public  policy;  that  the  cotton  purchased  by  each  was  his  individual 
property ;  and,  although  it  could  not  be  shown  how  much  was  pur- 
chased by  each,  yet  it  was  held  that  one-half  the  cotton  was  the 
individual  property  of  Fuller,  and  passed  under  the  assignment;  and 
judgment  was  rendered  against  Simpson  for  the  value  of  one-half  the 
cotton.  The  facts  on  which  this  finding  was  based  were,  in  sub- 
stance, as  follows:  That  about  October  24,  1893,  the  partnership  was 
formed  by  which  they  were  to  deal  in  cotton  at  Howe.  Each  partner 
was  to  furnish  an  equal  amount  of  capital,  and  they  were  to  share 
equally  the  profits  and  losses.  Each  partner  was  to  buy  cotton,  giv- 
ing his  individual  check  for  the  amount  of  the  purchase,  the  check  to 
be  marked  "  Cotton,"  and  such  checks  were  to  be  cashed  by  the  bank, 
and  charged  to  the  partnership  account  of  Simpson  &  Fuller.  The 
cotton  was  weighed  and  tagged  separately.  This  was  all  done  for 
the  purpose  of  inducing  farmers  who  might  have  cotton  to  sell  to 
believe  that  the  two  partners  were  competing  against  each  other  in 
the  purchase  of  cotton.  Their  arrangements  were  made  at  the  bank 
whereby  they  provided  a  partnership  fund  which  they  exhausted  in 
the  purchase  of  cotton  under  the  above  agreement,  and  then  they 
incurred  an  additional  indebtedness  to  the  bank  for  cotton  bought  in 
the  same  way.  At  the  time  of  Fuller's  individual  assignment,  the 
firm  of  Simpson  &  Fuller  owned  150  bales  of  cotton  thus  purchased, 
and  owed  about  S300  more  than  their  assets  would  pay  when  fairly 
applied  to  such  debts.  A  partnership  had  been  formed  for  the  pur- 
pose of  dealing  in  cotton  at  Howe.  It  cannot  be  doubted  that  the 
purpose  was  a  lawful  one. 

But  if,  in  the  agreement  for  conducting  their  business,  the  partners 
concealed  from  the  public  the  fact  that  they  were  buying  as  such,  and 


486  EIGHTS    AND   REMEDIES    OF   CREDITORS.  [CHAP.  V. 

thereby  induced  people  to  believe  that  they  were  competing  against 
each  other  for  the  purpose  of  preventing  competition,  a  serious  ques- 
tion might  arise  as  to  the  validity  of  such  dealing  under  our  statutes 
and  public  policy  if  this  was  a  contest  between  the  firm  and  some 
party  with  whom  they  had  such  dealings,  or  from  whom  they  bought 
such  cotton.  But  such  is  not  the  case.  The  transactions  had  been 
fully  completed.  The  firm  owned  certain  property  and  owed  certain 
debts;  and  one  of  the  partners,  desiring  to  make  an  assignment  of 
his  individual  assets  to  pay  his  individual  debts,  transferred  to  his 
partner  all  of  his  interest  in  the  firm  assets  for  the  purpose  of  allow- 
ing such  partner  to  pay  the  firm  debts,  which  appears  to  have  been 
fairly  done.  Have  such  individual  creditors  a  right  to  complain? 
They  contend,  in  effect,  that,  the  partnership  having  been  formed  to 
buy  cotton  by  suppressing  competition,  it  was  void ;  that  the  assets 
acquired  in  the  venture  were  owned  by  the  partners  individually, 
without  reference  to  any  debts  which  had  accrued  in  the  venture,  and 
without  reference  to  any  settlement  between  the  parties  themselves; 
and  that  the  interest  of  the  failing  partner  in  such  assets  passed  to 
his  creditors  under  his  assignment,  stripped  of  any  debts  of  the  con- 
cern, or  any  claimed  rights  of  such  partners.  This  position  cannot 
be  maintained. 

In  the  leading  case  of  Brooks  v.  Martin,  2  Wall.  70,  a  partnership 
had  been  formed  for  the  purpose  of  buying  up  soldiers'  claims  before 
any  scrip  or  land  warrant  was  issued,  which  was  directly  contrary  to 
the  statutes,  and  hence  illegal.  After  the  results  of  the  contemplated 
operation  had  been  completed,  the  partner  in  whose  hands  the  profits 
were,  refused  to  account  to  his  partner,  and  a  bill  was  filed  in  equity 
for  an  account  and  division  of  such  profits.  Justice  Miller,  in  deliver- 
ing the  opinion  of  the  court,  reviewed  the  authorities,  and  held  that, 
though  the  contract  was  illegal,  and  either  party  might  have  refused 
to  carry  it  out,  or  any  soldier  or  party  dealing  with  them  in  the  pur- 
chase of  such  claims  might  have  taken  advantage  of  its  illegality, 
yet,  after  the  completion  of  their  operations,  the  assets  acquired  were 
the  property  of  the  firm,  and  an  account  should  be  taken  accordingly. 
The  distinction  between  enforcing  illegal  contracts,  or  contracts 
void  as  against  public  policy,  and  asserting  title  to  property  or 
money  which  has  arisen  from  them,  is  clearly  and  distinctly  drawn. 
The  above  case  is  referred  to  with  approval  in  recent  decisions. 
Armstrong  v.  Bank,  133  U.  S.  469;  Farley  v.  Hill,  150  U.  S.  576; 
Planters'  Bank  v.  Union  Bank,  16  Wall.  500.  See  also  Armstrong 
v.  Toler,  11  Wheat.  258;  McBlair  v.  Gibbes,  17  How.  232;  Sharp  v. 
Taylor,  2  Phil.  Ch.  801;  Bly  v.  Bank,  79  Pa.  St.  453;  Harvey 
v.  Varney,  98  Mass.  123;  Greenh.  Pub.  Pol.  107,  108;  Anson, 
Cont.  186. 

In  the  case  of  Planters'  Bank  v.  Union  Bank,  above,  the  court 
said:  "  The  plaintiffs  do  not  require  the  aid  of  any  illegal  transaction 
to  establish  their  case.     It  is  enough  that  the  defendants  have  in 


§  4.]  ORDER   OF   PROOFS   AND   MARSHALLING. 

band  a  thing  of  value  that  belongs  to  them.  Some  of  the  authorities 
show  that,  though  an  illegal  contract  will  not  be  executed,  yel  when 
it  has  been  executed  by  the  parties  themselves,  and  the  illegal  ol 
of  it  has  been  accomplished,  the  money  or  thing  which  was  the  price 
of  it  may  be  a  legal  consideration  between  the  parties  for  a  promise, 
express  or  implied,  and  the  court  will  not  unravel  the  transaction  to 
discover  its  origin."  16  Wall.  500.  The  doctrine  above  announced 
has  been  fully  adopted  by  our  own  Supreme  Court,  and  the  leading 
case  of  Brooks  v.  Martin,  2  Wall.  70,  cited  and  quoted  with  approval. 
See  Pfeuffer  v.  Maltby,  54  Tex.  461;  Wegner  v.  Biering,  65  Tex. 
oil;  Labbe  v.  Corbett,  G'.i  Tex.  503;  Lewis  v.  Alexander,  .">1  Tex. 
579;  De  Leon  v.  Trevino,  49  Tex.  92.  In  the  last-named  case  Judge 
Moore  said:  "  But,  if  a  contract  is  illegal,  certainly  it  does  not  follow 
that  it  is  illegal  or  immoral  for  the  parties,  after  its  completion,  to 
fairly  settle  and  adjust  the  profits  and  losses  which  have  resulted  from 
it."  In  the  case  of  Lewis  v.  Alexander,  above,  winch  was  a  suit  to 
settle  a  partnership  business  growing  out  of  an  illegal  traffic,  the  court 
held  that  the  knowledge  on  the  part  of  a  lender  of  money  that  the 
money  loaned  might  be  used  in  an  illegal  enterprise  would  not  of 
itself,  without  other  act  in  aid  or  in  furtherance  thereof,  defeat  the 
right  of  such  lender  to  recover.  It  was  also  held  that  a  partner  who 
obtained  more  of  the  proceeds  of  the  illegal  venture  than  his  share, 
must  account  to  his  co-partner.  51  Tex.  .">7'.b  In  this  case,  if  the 
original  purpose  of  the  partnership  between  Simpson  &  Fuller  was 
contrary  to  public  policy,  still  the  assets  acquired  by  them  were  the 
property  of  the  concern;  and  when  Fuller  transferred  to  Simpson  all 
of  his  interest  in  the  assets,  so  that  the  latter  might  use  them  in  the 
payment  of  the  firm  debts,  such  transfer  was  based  upon  a  legal  con- 
sideration, which  was  not  tainted  by  any  vice  in  the  original  pur- 
chase of  the  property,  and  the  transaction  should  be  upheld.  If  the 
cotton  on  hand  and  owned  by  the  partnership  was  the  proceeds  of  an 
illegal  venture,  it  is  difficult  for  us  to  see  by  what  process  of  reason- 
ing it  can  be  maintained  that  the  individual  creditors  of  one  of  the 
partners  would  have  a  prior  right  to  satisfaction  out  of  such  as- cl- 
over the  creditors  of  the  partnership,  especially  when  the  failing 
partner  had,  with  the  knowledge  of  the  assignee,  transferred  his 
interest  therein  to  his  co-partner  in  order  that  it  might  be  applied  to 
the  firm  debts.  If  the  partners  had  the  right  to  dispose  of  the  firm 
assets  to  pay  the  firm  debts,  and  this  was  done  in  good  faith,  it  fol- 
lows that  the  court  did  not  err  in  refusing  to  give  judgment  against 
the  assignee  and  his  sureties,  or  against  the  City  Bank  of  Sherman. 
But  the  court  erred  in  rendering  judgment  against  appellee  .1.  W. 
Simpson  for  the  value  of  one-half  the  cotton,  and  his  cross  assign 
ment  to  that  effect  is  sustained.   .   .  . 


488  EIGHTS   AND   REMEDIES   OF   CREDITORS.  [CHAP.  V. 


§  5.    Death  of  a  Partner. 

LANE   v.    WILLIAMS. 
2  Vernon,  292.     1693. 

One  Newberry  and  Williams,  the  defendant's  late  husband,  being 
woollen-drapers  and  partners,  Newberry  survived;  and  some  years 
after  Newberry  also  died,  and  the  plaintiff  sought  to  recover  the  debt 
against  the  executors  of  Newberry,  who  signed  the  note ;  but  there 
being  a  deficiency  of  assets,  he  now  brought  this  bill  to  have  satis- 
faction out  of  the  estate  of  Williams. 

For  the  defendant  it  was  insisted  that  it  does  not  appear  that 
Williams  was  privy  or  consenting  to  the  borrowing  of  this  money, 
or  that  it  was  brought  into  stock,  or  used  in  the  trade ;  and  had  the 
plaintiff  demanded  it  in  the  lifetime  of  Newberry,  or  before  his  estate 
was  wasted  and  assets  exhausted,  the  defendant  might  have  had 
recourse  to  the  bond  of  co-partnership,  to  repair  the  loss  sustained 
by  Newberry's  taking  up  this  money,  and  giving  such  note,  without 
the  consent  or  privity  of  her  husband ;  but  she  had  now  lost  that 
remedy,  by  the  plaintiff's  laches  in  not  demanding  the  debt  sooner; 
and  therefore  the  plaintiff  ought  not  to  have  the  assistance  of  a  court 
of  equity  to  charge  her.  The  Master  of  the  Rolls,  before  whom  the 
cause  was  first  heard,  dismissed  the  bill. 

Per  Curiam.  The  money  being  paid  at  the  shop,  the  note  of  one 
partner  binds  both;  and  though  at  law  the  note  stands  good  only 
against  the  executor  of  the  surviving  partner,  who  was  Newberry, 
who  received  the  money,  and  signed  the  note,  yet  proper  in  equity 
to  follow  the  estate  of  Williams  for  satisfaction;  and  decreed  it 
accordingly. 


LORD   SELBORNE,    in  KENDALL  et  al.  v.  HAMILTON. 

4  Appeal  Cases,  504.     1879. 

"  My  Lords,  the  argument  of  the  appellants  was  chiefly,  if  not 
wholly,  founded  upon  the  course  of  the  Court  of  Chancery  in  the 
administration  of  the  assets  of  a  deceased  person,  who  has  been  a 
partner  in  a  trading  firm,  and  upon  the  language  held  by  several 
judges  of  high  authority  with  respect  to  the  equitable  position  of 
partnership  creditors. 

"  If  that  language  were  found  to  be  technically  exact,  when  tested 
by  the  practice  of  courts  of  equity,  upon  all  occasions  when  the  rights 
of  partnership  creditors  have  come  in  question,  it  might,  perhaps,  be 
a  sound  conclusion  that  its  principle  ought  to  be  extended  to  such  a 
case  as  the  present,  though  no  precedent  directly  in  point  has  been 


§  5.]  DEATH    OF   A   TARTNER.  489 

produced.  But  the  fact  is  otherwise.  If  every  debt  of  a  trading 
partnership  were  regarded  in  equity  as,  from  its  commencement,  joint 
and  several,  in  the  proper  sense  of  those  words,  there  could  be  no 
reason  why  in  bankruptcy,  where  equitable  are  regarded  as  much  as 
legal  rights,  it  should  not  have  boon  treated  in  the  same  way  as  any 
other  joint  and  several  debt;  nor  why  Lord  Kldon  should  have  made 
such  a  decree  as  he  did  in  the  case  of  Gray  v.  Chiswell,  9  Yes.  118. 
Nor  do  I  think  it  possible  that  if  in  equity,  a  separate  debt  due  from 
a  creditor  of  a  firm  to  one  of  the  partners  could  be  set  off  against  the 
debt  of  the  firm,  there  would  not  have  been  ample  authority  for  that 
proposition. 

"  If  no  rule  had  been  established  in  equity,  giving  partnership 
creditors  a  remedy  against  the  assets  of  a  deceased  partner,  it  would 
have  seemed  clear,  on  principle,  that  in  all  these  cases,  when  there 
was  no  mistake  to  be  rectified  in  any  written  instrument,  the  legal 
contract  between  the  creditor  and  the  debtors  was  the  only  contract, 
and  that  its  construction  must  be  the  same  in  equity  as  at  law. 

"  I  conclude,  therefore,  that  those  expressions  of  eminent  judges  in 
which  partnership  debts  have  been  spoken  of  as,  in  equity,  joint  and 
several,  were  not  meant  by  them  to  be  understood  in  the  proper  and 
technical  sense  of  those  words;  and  that  they  cannot  safely  be  used 
to  establish  any  rule  or  principle  extending  beyond  those  limits 
within  which  courts  of  equity  have  hitherto  given,  to  creditors  of  a 
partnership,  remedies  which  they  could  not  have  obtained  at  law. 

"It  is  undoubtedly  true  that  the  remedy  which  a  court  of  equity 
gives  to  a  partnership  creditor,  in  the  administration  of  the  assets  of 
a  deceased  partner,  has  the  effect  of  preserving  to  him  the  liability 
of  an  estate  which,  by  the  survivorship  of  the  co-debtor  or  co-debtoi 's, 
has  at  law  become  exonerated.  Great  judges,  such  as  Lord  Eldon 
and  Lord  Thurlow,  have  felt  difficulty  in  referring  this  course  of 
practice  to  any  very  clear  or  satisfactory  principle.  It  has  been  said 
to  depend  upon,  or  to  arise  out  of,  the  adjustment  of  the  rights  and 
liabilities  of  the  deceased  and  the  surviving  partners  inter  se;  but 
this  explanation  does  not,  to  my  mind,  remedy  the  difficulty,  because, 
upon  that  principle,  it  would  seem  that  the  creditors  ought  to  be 
limited,  in  each  particular  case,  by  the  extent  of  the  rightful  claims 
of  the  surviving  partners  upon  the  deceased  partner,  and  to  be  wholly 
excluded  if  the  state  of  the  accounts  between  them  were  such  as  to 
make  it  just  to  leave  the  whole  liability  where  the  law  had  cast  it, 
viz.,  upon  the  surviving  partners.  The  actual  course  of  administra- 
tion (subject  to  the  distinction  between  a  personal  action  and  proof 
against  assets)  has  been  to  give  the  creditor  as  large  and  unqualified 
a°remedy  against  the  estate  of  the  deceased  partner,  as  he  would  have 
had  by  actTon  at  law  in  his  lifetime.  There  is,  as  it  seems  to  me, 
only  one  reallv  consistent  explanation  of  this  course  of  practice,  when 
taken  in  connection  with  the  rule  in  bankruptcy,  and  with  the  general 
principles  of  law  and  equity,  viz.,  that  derived  from  the  doctrine  *ju» 


490  EIGHTS   AND   REMEDIES    OF    CREDITORS.  [CHAP.  V. 

accrescendi  inter  mercatores  locum  non  hahet.''  As  in  several  other 
well-known  classes  of  cases  (of  which  mortgages  and  security  bonds, 
with  penalties,  may  be  taken  as  examples),  equity  controls  the  opera- 
tion of  a  legal  contract  so  as  to  give  effect  to  the  purposes  and  objects 
to  which  it  was  meant  to  be  subsidiary,  so  in  these  partnership  cases 
it  controls,  inter  mercatores,  the  legal  effect  of  survivorship.  If  that 
is  the  principle  of  the  rule,  it  is  one  which  arises  upon  death  only. 
The  partnership  is  dissolved  by  death;  but  in  equity  it  is  taken  as 
still  subsisting,  for  every  purpose  of  liquidation,  just  as  if  it  had 
been  dissolved  inter  vivos,  and  the  creditors  are  taken  as  still  cred- 
itors of  that  partnership.  What  was  before  joint  thus  becomes 
several,  by  the  dissolution,  and  by  the  exclusion  in  equity  of  the 
survivorship  which  takes  effect  in  law;  and  although,  when  this  rule 
was  first  established,  it  might  well  have  been  doubted  whether  it  did 
not  give  creditors  rights  for  which  they  had  never  contracted,  there 
could  be  no  doubt,  after  it  had  once  become  a  settled  rule,  that  the 
rights  resulting  from  it  were  necessarily  implied  in  all  subsequent 
onerous  contracts  by  co-partners.  For  this  purpose  (and,  as  it  seems 
to  me,  for  this  purpose  only,  and  only  by  the  operation  of  death)  all 
such  contracts  may  be  described,  as  in  equity,  joint  and  several." 


VOORHIS   et  al.    v.    CHILDS'   EXECUTOR. 
17  N.  Y.  354.     1858. 

Plaintiffs  brought  their  action  against  the  surviving  members  of 
the  firm  of  Baxter,  Brady,  Lent,  &  Co.,  and  against  the  respondent 
as  executor  of  Childs,  a  deceased  member  of  the  firm.  The  com- 
plaint alleged  the  making  of  a  promissory  note  by  the  firm;  its 
maturity  and  non-payment;  the  subsequent  death  of  Childs;  the 
granting  of  letters  testamentary  to  respondent  as  executor,  etc.  It 
did  not  aver  any  previous  suit  against  the  surviving  partners  or  their 
insolvency.  The  respondent  demurred  on  the  ground  that  the  com- 
plaint did  not  state  a  cause  of  action  against  him.  A  judgment  dis- 
missing the  complaint  as  against  him  was  affirmed  by  the  General 
Term,  and  plaintiffs  appealed  to  this  court. 

Richard  W.  Harrington,  for  the  appellants. 

Charles  F.  Sandford,  for  the  respondent. 

Selden,  J.  "  Prior  to  the  enactment  of  the  Code  of  Procedure 
there  was  a  conflict  of  opinion  between  the  courts  of  this  State  and 
those  of  England,  as  to  the  remedy  allowed  to  the  creditors  of  a 
partnership  against  the  representatives  of  a  deceased  partner.  It 
was  conceded  by  both  that  only  the  surviving  partners  could  be  sued 
at  law,  but  it  was  held  by  the  English  courts  that  the  representatives 
of  the  deceased  partner  might  be  immediately  proceeded  against  in 


§  5.]  DEATH   OF    A    PARTNER.  491 

equity  and  compelled  to  pay  the  entire  debts  of  the  linn,  without  any 
previous  resort  to  the  surviving  members,  or  any  evidence  that  such 
debts  could  not  be  collected  from  them;  while  on  the  other  hand  our 
courts  held,  either  that  the  remedy  against  the  survivors  must  firsl 
be  exhausted,  or  it  must  appear  that  they  were  Insolvent  and  unable 
to  pay. 

"  Prior  to  the  case  of  Devaynes  v.  Xoble,  1  Mer.  397,  the  decisions 
of  the  Court  of  Chancery  in  England  appear  to  have  been,  for  a  con- 
siderable time  at  least,  in  accordance  with  those  in  this  State.  The 
precise  ground  of  the  chauge  seems  to  have  been  this:  In  the  earlier 
cases  it  had  beeu  assumed  that  the  liability  in  equity  of  the  estate  of 
the  deceased  partner  was  produced  by  a  sort  of  equitable  transfer  to 
the  creditor  of  the  right  of  the  surviving  partners  to  insist  that  the 
estate  of  their  deceased  associate  should  contribute  to  the  payment 
of  the  debts  of  the  firm;  but  upon  its  being  afterwards  held  that 
the  obligations  of  partners  were  to  be  regarded  as  joint  and  several, 
the  English  courts  said  that  in  all  cases  of  that  kind  creditors  had  a 
right  to  pursue  their  remedies  against  all  or  either  of  their  debtors. 
They  therefore  held  that  they  might  proceed  immediately  in  equity 
against  the  representatives  of  a  deceased  partner,  without  resorting 
to  their  legal  remedies  against  the  survivors.  The  courts  in  this 
State,  however,  refused,  for  what  appear  to  be  substantial  reasons, 
to  adopt  the  change.  Its  effect  was,  to  apply  to  a  proceeding  in 
equity  the  strict  legal  rules  applicable  to  suits  at  law.  It  obviously 
overlooked  many  equitable  considerations  of  great  force.  The  sur- 
viving partners  succeed  primarily  to  all  the  rights  and  interests  of 
the  partnership.  They  have  the  entire  control  of  the  partnership 
property,  and  the  sole  right  to  collect  the  partnership  dues.  The 
assets  of  the  firm  are  of  course  to  be  regarded  as  the  primary  fund 
for  the  payment  of  the  partnership  debts,  and  it  would  seem  equitable 
at  least  that  the  parties  having  the  exclusive  possession  of  this  fund 
should  be  first  called  upon.  The  answer  given  to  this  by  the  English 
courts,  that  the  representatives  of  the  deceased  partner  have  their 
remedy  over,  seems  hardly  satisfactory.  The  presumption  is,  that 
the  primary  fund  is  sufficient  to  meet  the  demands  upon  it.  Why, 
then,  permit  in  equity  a  resort  to  another  fund,  and  thus  give  rise 
to  a  second  action  for  its  reimbursement.  Besides,  these  English 
decisions  permitting  the  creditor  to  proceed  in  the  first  instance  in 
equity  against  the  estate  of  the  deceased  partner  are  in  conflicl  with 
the  established  doctrine  that  parties  must  first  exhaust  their  legal 
remedies  before  resorting  to  courts  of  equity. 

"  But  whether  these  considerations  are  sufficient  to  justify  the  posi- 
tions assumed  by  our  courts  or  not,  it  maybe  regarded  as  having  been 
settled  in  this  State,  prior  to  the  Code,  that  the  creditor  in  such  a 
case  could  not  come  into  a  court  of  equity  without  showing,  either 
that  the  surviving  partners  had  been  proceeded  against  to  execution 
at  law,  or  that  they  were  insolvent.      Grant  ''.  Slunk  r,  1   Wend.    148} 


492  RIGHTS   AND    REMEDIES    OF   CREDITORS.  [CHAP.  V. 

Hamersly  v.  Lambert,  2  Johns.  Ch.  608;  Leake  &  "Watts  Orphan 
House  v.  Lawrence,  11  Paige,  80;  2  Denio,  577,  s.  c.  In  the  last 
of  these  cases,  the  English  cases  referred  to  were  cited  and  distinctly 
overruled.  There  are  many  American  cases,  both  in  the  State  and 
United  States  courts  supporting  and  confirming  the  doctrine  of  the 
courts  of  this  State  upon  this  subject.  Pendleton  v.  Phelps,  4  Day, 
481;  Reimsdyk  v.  Kane,  1  Gall.  385;  Sturges  v.  Beach,  1  Conn. 
509 ;  Alsop  v.  Mather,  8  Conn.  584 ;  Caldwell  v.  Stileman,  1  Rawle, 
212;  Hubbell  v.  Perrin,  3  Ham.  (Ohio)  287. 

"  The  complaint  in  this  case  is  in  the  form  of  an  ordinary  action 
at  law  upon  a  promissory  note  against  all  the  surviving  partners, 
together  with  the  executors  of  the  deceased  partner;  and  contains  no 
averment  that  any  proceedings  have  ever  been  had  against  any  or 
either  of  the  surviving  partners,  or  that  they  are  without  the  means 
of  payment.  From  what  has  been  already  said,  it  is  plain  that 
formerly  no  such  action  could  have  been  maintained.  The  question 
presented  is,  how  far  the  Code  has  changed  the  law  in  this  respect. 
It  cannot  be  claimed  that  it  has  altered  the  principles  which  govern 
the  responsibility  of  the  representatives  of  a  deceased  partner  for  the 
partnership  debts,  or  the  order  of  liability  as  between  them  and  the 
surviving  partners.  It  contains  not  a  word  indicative  of  such  an 
intent.  The  latter,  therefore,  are  still  primarily  liable  for  the  debts ; 
and  the  estate  of  the  deceased  partner  can  only  be  resorted  to  in  case 
of  the  inability  of  the  survivors  to  meet  them.  Hence  it  is  plain  that 
this  action  cannot  be  sustained  as  a  suit  in  equity,  founded  upon  the 
ultimate  liability  of  the  representatives  of  Childs;  because  it  has 
been  shown  that  in  such  an  action  it  is  indispensable  to  aver,  either 
that  the  survivors  have  been  prosecuted  to  execution  at  law,  or  that 
they  are  without  the  means  of  payment.  What  I  understand  the 
plaintiffs'  counsel  to  claim  is,  that  considering  the  suit  as  founded 
upon  the  legal  liability  of  the  surviving  partners,  the  plaintiffs  were 
warranted  in  making  the  executors  parties  by  §  118  of  the  Code. 
[After  considering  this  argument,  and  concluding  that  the  Code  did 
not  "  authorize  a  suit  like  the  present,"  the  learned  judge  concluded:] 
As,  therefore,  the  present  action  must  be  regarded  as  one  of  a  purely 
legal  nature  brought  against  the  surviving  partners,  upon  their  legal 
liability,  it  follows,  that  the  executor  of  the  deceased  partner,  who 
is  liable  only  in  equity,  were  improperly  made  parties.  .  .  .  The 
judgment  of  the  Supreme  Court  should  therefore  be  affirmed." 

Pratt  and  Strong,  JJ.,  concurred  in  this  opinion,  and  Denio,  J., 
in  the  construction  of  §  118.  All  the  other  judges  concurred  in  the 
result,  upon  the  ground  that  the  complaint  made  no  cause  of  action 
against  the  respondent,  reserving  the  question  whether  the  insolvency 
of  the  surviving  partners,  or  of  the  partnership  estate,  would  justify 
a  joint  action  against  the  survivors  and  the  representatives  of  the 
deceased  partners.  Judgment  affirmed. 


§  5.]  DEATH    OF   A    TARTNER.  493 


STEWART'S   CASE. 

4  Abb.  Pr.  (X.  Y.)  408.     1857. 

The  Surrogate.     The  testator  was  a  member  of  the  firm  of  J.  J. 
Stewart  &  Co.,  and  on  the  distribution  of  the  sale  of  his  real  estate 
a  question  arises  as  to  the  proper  mode  of  marshalling  the  ass<  t> 
between  the  individual  and  the  partnership  creditors.     On  the  decease 
of  Stewart,  his  surviving  partners  settled  the  affairs  of  the  linn,  ami 
distributed  the  assets  among  the  partnership  creditors;  but,  the  firm 
being  insolvent,  a  large  portion  of  the  joint  debts  remained  unpaid. 
The  surviving  partner  also  being  insolvent,  the  only  remedy  remain- 
ing   to   the  partnership  creditors,   for  the  unpaid  balances  of  their 
claims,  is  against  the  estate  of  the  testator,  Stewart.     The  question 
is,  whether  the  partnership  creditors  can  come  in  and  share  ratably 
with  the  separate  creditors  of  Stewart,  or  must  be  postponed  until  the 
separate  creditors  are  paid.     It  is  well  settled,  both  at  law  and   in 
equity,  that  the  separate  creditors  of  a  partner  of  a  linn  can  reach 
only  the  interest  of  their  debtor,  or  his  proportion  of  the  surplus  of 
the  joint  property  remaining   after  payment  of  all   the  partner-hip 
debts.     In  the  matter  of  Smith,    1G  Johns.  102;  Moody   v.   Payne, 
2  Johns.   Ch.    548.     But  in  regard  to  the  claims  of  the  partnership 
creditors,  there  is  a  distinction  between  the  legal  and  the  equitable 
rule.     At  law,  the  partnership  creditors  may  pursue  both   the  joint 
and  the  separate  estate  for  the  satisfaction  of  their  debts,  which  at 
law  are  considered  both  joint  and  several.     On  the  death  of  one  of 
the  parties  the  legal  right  ceases  against  the  deceased  partner,  and 
survives  only  against  the  surviving  partner.     A  court  of  equity,  how 
ever,  will  decree  to  joint  creditors   satisfaction  of  their  claims,  as 
against  the  representatives  of  the  deceased  partner,  when  by  reason 
of  the  insolvency  of  the  firm  and  of  the  surviving  partner,  no  other 
remedy  exists.     Thus  far  the  rule  seems  plain.     But  what  are  the 
rights  of  the  joint  creditors  as  against  the  separate  creditors  of  the 
deceased  partner,  when  the  estate  of  the  latter  is  insufficient  to  pay 
both  classes  of  claims?     Have  the  individual  creditors  a  prior  right 
to  the   individual  estate,  and   are  they  entitled  to  be  paid  first,  in 
preference  to  the  joint  creditors?     The  legal  claim  of  the  joint  cred- 
itors against  the  separate  property  of  the  deceased  partner  is  terminable 
by  his  death,  but  a  remedy  will  be  afforded  in  equity,  according  to 
equitable  principles.     The  general  doctrine  is  very  clearly  established 
in  this  State,  that  joint  creditors  shall  not  be  permitted  to  reach  the 
individual  estate  of  the  deceased  partner  until  all  the  separate  cred- 
itors are  satisfied.      Murray  v.  Murray,    5  Johns.    Ch.    GO;    Bobbins 
v.    Cooper,   6  Id.    186;  Wilder  v.  Keeler,   3  Paige,   167;   Egberts  v. 
Wood,    Id.    517,    527;    Payne    v.    Matthews,    G   Id.    20;    Jackson   V. 
Cornell,  1  Sandf.  Ch.  348;  Burtus  v.  Tisdall,  4  Barb.  571.      The  only 
exception  to  this   rule,  according  to  the  English  decisions,  is  whero 


494  EIGHTS   AND   REMEDIES    OF   CREDITORS.  [CHAP.  V. 

there  is  no  joint  estate  and  no  solvent  surviving  partner,  in  which 
case  the  joint  creditors  shall  not  be  postponed,  but  will  be  allowed  to 
come  in  ratably  with  the  individual  creditors.     Ex  parte  Hayden,  1 
Bro.  C.   C.   454;  Ex  'parte  Abell,  4  Ves.   838;  Ex  parte  Pinkerton, 
6   Ves.   814,    note;   Ex  parte  Kensington,    14  Ves.    447;    Ex  parte 
Kendall,   17  Ves.   521.     But  this  exception  does  not  prevail  if  the 
joint  estate,  though   insolvent,  be   able  to  pay  a  dividend,  however 
inconsiderable.     Gray  v.  Chiswe.ll,  9  Ves.  124;  M'Culloh  v.  Dashiell, 
1  Harr.  &  G.  96;  Gow  on  Partn.  408.     If  there  be  any  joint  estate 
or  fund,  though  of  trifling  amount,   the  joint  debts  are  attached  to 
that,  and  cannot  receive  dividends  out  of   the  separate  estate  pari 
passu  with  the  separate  creditors.     It   is  not  easy  to  perceive  the 
ground  of  distinction  upon  which  this  modification  of  the  exception 
is   based.     The   general    principle   is,   that   the   joint   creditors    are 
attached  to  the  joint  fund,  and  the  separate  creditors  to  the  separate 
fund;  but  where  there  is  no  joint  fund  and  no  solvent  surviving  part- 
ner, so  that  the  joint  creditor  is  without  remedy,  then  he  may  come 
in   against  the  separate  estate.     The  English  courts  of  equity  thus 
recognized  both  against  the  representatives  of  the  deceased  partner 
and  his  individual  creditors,  the  joint  and  several  character  of  the 
partnership  debts,  when  other  remedies  are  exhausted,  at  the  time  of 
the  death  of  the  deceased  partner.     The  fact  that  some  dividend  has 
been  or  may  be  received  from  the  joint  effects,  does  not  change  the 
joint  and  several  character  of  the  partnership  debts,  but  only  tends 
to  effect  the  equitable  marshalling  of  the  separate  assets.     After  the 
receipts   of   the  dividend,  there  remains  as  to  the  balance  due  no 
remedy  against  the  separate  estate,  which,  if  there  were  no  individual 
creditors,  would  be  applied  to  the  discharge  of  the  balance.     The 
principle  upon  which  this  rule   is  based  would  seem  to  be  satisfied 
if  the  joint  creditors  bring  in  the  dividend  received  from  the  joint 
estate,  place  it  in  a  common  fund,  out  of  which  all  are  to  share  alike, 
and  relinquish  the  advantage  of  having  claims,  joint  as  well  as  several 
in  their  nature.     To  say  that  the  joint  creditor  may  resort  to  the 
separate  estate,  when  there  is  no  joint  fund  and  no  solvent  partner, 
but  cannot  resort  to  it  if  he  has  happened  to  realize  oue  mill  on  the 
dollar,  would  appear  to  establish  a  distinction  more  technical  than 
just.     If  the  dividend  is   brought  in,  the  ground  of  the  distinction 
ceases,  no  priority  or  advantage  is  gained,  and  all  the  demands  are 
placed  upon  the  common  ground  of  equality.     In  this  State,  however, 
the  distinction  of  the  English  courts  of  equity  on  this  subject  has  not 
prevailed  in  regard  to  the  general  rule.     In  Wilder  v.  Keeler,  3  Paige, 
167,  the  chancellor  held,  that  although  the  joint  creditors  upon  an 
allegation  of  the  insolvency  of  the  surviving  partners  have  an  equi- 
table right  to  compel  a  satisfaction  of  their  debts  out  of  the  estate  of 
the  deceased  partner,  this  equity  exists  only  against  the  heirs  and 
representatives  of  the  deceased,  but  not  against  his  separate  creditors; 
that  if  the  joint  creditors  have  received  nothing  on  account  of  their 


§  5.]  DEATH   OF   A    PARTNER  490 

debts  since  the  death  of  the  decedent,  the  equities  between  the  joint 
and  separate  creditors  may  be  equal;  but  even  in  such  a  case  the 
court  has  no  power  to  deprive  the  separate  creditors  of  their  former 
rights  and  legal  assets.     The  same  principle  wi  in  asserted  in 

Egberts  v.  Wood,  3  Paige,  .317;  in  Payne  v.  Matthews,  6  Id.  20; 
Kirby  v.  iSchoonmaker,  ;;  Barb.  Ch.  46.  The  principle  that  equity 
will  not  interfere  to  destroy  or  impair  the  legal  preference  in  regard 
to  legal  assets,  which  appertains  to  the  separate  creditors  at  law,  is 
sound,  and  it  established  such  a  basis  of  distinctions  as  admits  of  a 
clear  and  consistent  course  of  reasoning,  and  prevents  any  confusion. 
See  Trustees  v.  Lawrence,  11  Paige,  80;  Jackson  v.  Cornell,  1  Sandf. 
Ch.  318.  Whether,  therefore,  the  assets  in  the  present  case  are  to 
be  treated  strictly  as  legal  assets,  or  ought  to  be  marshalled  accord- 
ing to  equitable  principles,  the  joint  creditors  cannot  be  permitted  to 
have  their  debts  paid  out  of  the  separate  estate  of  the  deceased  part- 
ner until  all  the  separate  debts  are  paid.  If,  after  such  payment  be 
made,  any  surplus  remains,  then  it  may  be  applied  to  the  payment  of 
the  partnership  creditors;  and  in  that  case  those  who  have  received 
partial  payment  out  of  the  partnership  property  must  bring  in  their 
dividends,  and  share  ratably  with  those  who  have  not  received  divi- 
dends, or  else  be  excluded  until  the  latter  class  of  partnership  cred- 
itors have  received  a  sufficient  amount  to  place  them  on  terms  of 
equality  with  the  former. 


DOGGETT  v.   DILL. 
108  111.  560.     1884. 

Craig,  J.  W.  E.  Doggett  died  April  3,  187G,  testate,  and  Kate  E. 
Doggett,  appellant,  qualified  as  executrix.  Doggett,  at  his  death,  was  a 
member  of  the  firm  of  Doggett,  Barrett,  &  Hills. 

In  1871,  T.  C  H.  and  Lucy  W.  Smith  executed  their  two  promissory 
notes  for  certain  sums  of  money,  payable  to  Charles  II.  Dill.  The 
two  notes,  on  the  date  of  their  execution,  were  guaranteed  by  Doggett, 
Barrett,  &  Hills,  the  firm  name  to  the  guarantee  being  signed  by  Doggett. 
No  effort  was  made  by  Dill  to  collect  the  amount  dua  on  the  notes  from 
the  firm  assets,  or  from  the  surviving  members  of  the  firm  of  Doggett, 
Barrett,  &  Hills,  but,  after  the  death  of  Doggett,  he  presented  the  claim 
to  the  Probate  Court,  to  be  allowed  against  the  estate  of  deceased. 
The  Probate  Court,  upon  the  evidence  introduced,  allowed  the  claim, 
and  the  executrix;  appealed  to  the  Circuit  Court,  where  a  second  trial 
was  had,  resulting  in  a  judgment  against  the  estate.  An  appeal  was 
then  taken  to  the  Appellate  Court,  where  the  judgment  of  the  Circuit 
Court  was  affirmed,  and  this  record  is  brought  here  b}-  the  executrix 
for  the  purpose  of  reversing  the  judgment  of  the  Appellate  Court. 

It  is  insisted  by  appellant  that  a  partnership  demand  cannot  be  at 


496  EIGHTS   AND    REMEDIES    OF   CREDITORS.  [CHAP.  V. 

lowed  against  the  individual  estate  of  a  deceased  partner  until  the  legal 
remed}-  against  the  partnership  assets  and  surviving  partners  has  been 
exhausted. 

In  Mason  v.  Tiffany,  45  111.  392,  which  was  a  proceeding  in  chancery, 
by  a  creditor  of  a  firm,  to  enforce  payment  of  a  firm  debt  against  the 
estate  of  Tiffairy,  a  deceased  member  of  the  firm,  it  was  held  that  every 
partnership  debt  being  joint  and  several,  it  follows  necessarily,  that 
resort  may  be  had,  in  the  first  instance,  for  the  debt,  to  the  surviving 
partners,  or  to  the  assets  of  the  deceased  partner.  In  the  decision  of 
the  case  it  is  said:  "  If  it  was  a  fact  that  the  surviving  partners  re- 
mained solvent  for  a  long  time  before  the  assignment,  and  the  assigned 
assets  were  sufficient  to  pay  this  claim,  still  these  did  not  require  the 
complainant  to  press  his  claim  against  them,  the  estate  of  the  deceased 
partner  being  equally  a  fund  on  which  lie  had  a  right  to  rely."  This 
case  seems  to  establish  the  doctrine,  in  plain  words,  that  a  creditor,  in 
equity,  has  the  right,  where  he  holds  a  claim  against  a  firm,  one  mem- 
ber of  which  has  died,  to  proceed  against  the  estate  of  the  deceased 
member  or  the  surviving  partners,  as  he  may  elect. 

In  Silverman  v.  Chase,  90  111.  37,  the  same  question  arose,  and  fol- 
lowing the  doctrine  of  the  case  last  cited,  it  was  said  :  "  A  partnership 
debt  is  joint  and  several,  and  the  creditor  has  the  right  to  elect  whether 
he  will  proceed  against  the  assets  in  the  hands  of  the  surviving  part- 
ner or  against  the  estate  of  the  deceased  partner,  as  held  by  this  court 
in  Mason  v.  Tiffany,  45  111.  392.  Nor  will  the  laches  of  the  creditor 
in  following  the  assets  of  the  firm  preclude  a  recovery.  The  creditor 
has  the  right  to  proceed  against  the  estate  at  any  time  before  the 
statute  of  limitations  has  run,  and  a  failure  to  pursue  the  partnership 
assets  cannot  be  relied  upon  as  a  defence  when  suit  is  brought  against 
the  estate." 

These  two  cases  would  seem  to  be  conclusive  of  the  question  pre- 
sented, so  far  at  least  as  this  court  is  concerned,  as  they,  in  terms, 
decide  the  same  question  involved  in  the  record  before  us,  and  it  would 
not  be  deemed  necessary  to  say  anything  more  on  the  question  were 
it  not  for  the  fact  that  it  is  claimed  that  these  cases  are  in  conflict  with 
prior  decisions  of  this  court,  and  the  doctrine  therein  announced  is  not 
sound  and  in  harmony  with  the  current  of  authority  on  the  subject. 
We  have  therefore  concluded  to  briefly  refer  to  some  of  the  authori- 
ties which  have  a  bearing  on  the  question,  with  the  view  of  showing 
that  the  decisions  of  this  court  are  fully  sustained  b}7  the  weight  of 
authority. 

Story  on  Partnership,  §  362,  says:  "The  doctrine  formerly  held 
upon  this  subject  seems  to  have  been,  that  the  joint  creditors  had  no 
claim  whatsoever  in  equity  against  the  estate  of  the  deceased  partner, 
except  when  the  surviving  partners  were  at  the  time,  or  subsequently 
became  insolvent  or  bankrupt.  But  that  doctrine  has  been  since  over- 
turned, and  it  is  now  held  that  in  equity  all  partnership  debts  are  to  be 
deemed  joint  and  several,  and  consequently  the  joint  creditors  have%  in 


§  5.]  DEATH   OF   A    PARTNER.  497 

all  cases,  the  right  to  proceed  at  law  against  the  survivors,  and  an 
election  also  to  proceed   in   equity    against   the  estate  of  a  decea 
partner,  whether  the  survivors  be  insolvent  or  bankrupt  or  not,"     The 
same  doctrine,  but  in  different  language,  is  declared  by   Storv  in  his 
work  on  Equity  Jur.,  §  676. 

Collyer  on  Partnership,  §  580,  declares  the  law  in  the  following 
language:  "It  is  now  established  beyond  controversy,  that  in  the 
consideration  of  courts  of  equity,  a  partnership  debt  is  several  as  well 
as  joint,  and  that  upon  the  death  of  a  partner  a  joint  creditor  has  a  right 
in  equity  to  proceed  immediately  against  the  representative  of  the 
deceased  partner  for  payment  out  of  his  separate  estate,  without  ref- 
erence to  the  question  whether  the  joint  estate  be  solvent  or  insolvent, 
or  to  the  state  of  accounts  amongst  the  partners." 

Dixon  on  Partnership,  113,  says:  "  When  a  liability  exists  the  cred- 
itor may,  at  his  option,  either  pursue  his  legal  remedy  against  the  sur- 
vivor, or  resort  in  equity  to  the  estate  of  the  deceased^  and  this  alto- 
gether without  regard  to  the  state  of  the  accounts  between  the  partners 
themselves,  or  to  the  ability  of  the  survivor  to  pay." 

Lindley  on  Partnership,  1053,  says  :  "  Whatever  doubt  there  may 
formerly  have  been  upon  the  subject,  it  was  clearly  settled  before  the 
judicature  acts,  that  a  creditor  of  the  firm  could  proceed  against  the 
estate  of  the  deceased  partner  without  first  having  recourse  to  the 
surviving  partners,  and  without  reference  to  the  state  of  the  accounts 
between  them  and  the  deceased."  See  also  Parsons  on  Mercantile 
Law,  192  ;  Adams  Eq.  173  ;  Smith  on  Mercan.  Law,  48  ;  3  Kent,  Com. 
63,  64,  and  note. 

From  the  citations  made,  it  would  seem  that  the  law  as  declared  in 
Mason  u.  Tiffany,  and  Silverman  v.  Chase,  supra,  is  fully  sustained,  at 
least  by  text  writers  of  high  authority  both  in  this  country  and  in 
England.  But  it  will  not  be  necessary  to  rely  alone  on  the  text  books 
for  a  solution  of  the  question,  as  the  decisions  in  England  and  many  of 
the  States  are  in  harmony  with  the  rule  declared  in  the  text  books. 

In  England,  as  early  as  1816,  in  Devaynes  v.  Noble,  1  Mer.  529, 
it  was  decided,  that  in  equity  partnership  debts  are  joint  and  several, 
and  a  creditor  holding  a  firm  debt  could  resort  to  the  estate  of  the 
deceased  partner  for  payment,  without  showing  the  insolvency  of  the 
survivor.  The  rule  adopted  in  the  case  cited  was  subsequentlv  ad- 
hered to  and  followed  in  Wilkinson  v.  Henderson,  1  M.  &  K.  582,  ami 
since  the  decision  of  these  cases  the  doctrine  there  announced  has  been 
regarded  as  the  settled  law  of  England. 

In  Nelson  v.  Hill,  5  How.  127,  the  Supreme  Court  of  the  United 
States  held  that  the  creditor  of  a  partnership  ma}-,  at  his  option,  pro- 
ceed at  law  against  the  surviving  partner,  or  go  in  the  first  instance 
into  equity  against  the  representatives  of  the  deceased  partner  ;  that  it 
was  not  necessary  to  exhaust  his  remedy  at  law  against  the  surviving 
partner  before  proceeding  in  equit}7  against  the  estate. 

In  support  of  the  rule  announced,  Story  on  Partnership,  §  862,  note 

32 


498  EIGHTS    AND   REMEDIES    OF   CREDITORS.  [CHAP.  V- 

3,  is  cited.  In  a  later  case  (Lewis  v.  United  States,  92  U.  S.  622), 
Nelson  v.  Hill  is  cited  with  approval. 

In  Camp  v.  Grant,  21  Conn.  41,  the  Supreme  Court  of  Connecticut, 
in  an  able  opinion,  adopt  the  rule  of  the  courts  of  England. 

In  We}'er  v.  Thornburgh,  15  Ind.  124,  the  question  arose,  and  the 
Supreme  Court  of  that  State  adopted  the  rule  in  the  language  of  Story  on 
Partnership,  cited  sttpra,  and  this  decision  was  followed  in  a  number 
of  subsequent  cases.  Dean  v.  Phillips,  17  Ind.  406  ;  Hardy  v.  Over- 
man, 36  Id.  549. 

In  Freeman  v.  Stewart,  41  Miss.  141,  the  question  arose,  and  the 
Supreme  Court  of  that  State  held  in  equity  all  partnership  debts  are 
joint  and  several,  and  a  creditor  has  the  right  to  proceed  in  law  against 
the  survivor,  and  an  election  also  to  proceed  against  the  separate  estate 
of  the  deceased  partner,  whether  the  survivor  be  solvent  or  not.  See 
also  Irby  v.  Graham,  46  Miss.  428,  where  the  English  rule  is  fully 
approved.  The  same  doctrine  has  been  adopted  in  Vermont,  in  Wash- 
burn v.  Bank  of  Bellows  Falls,  19  Vt.  278.  In  Tennessee,  in  Saunders 
v.  Wilder,  2  Head,  579.  In  Arkansas,  in  McLain  v.  Carson,  4  Ark. 
164.  In  New  Jersey,  in  Wisham  v.  Lippincott,  1  Stockt.  Eq.  353. 
In  Alabama,  in  Travis  v.  Tartt,  8  Ala.  577.  In  Florida,  in  Fileyau  v. 
Laverty,  3  Fla.  72.  In  Texas,  in  Gant  v.  Reed,  24  Texas,  46.  In 
New  Hampshire,  in  Bowker  v.  Smith,  48  N.  H.  111.  In  New  York 
and  Georgia  a  contrary  rule  has  been  adopted,  as  will  be  found  in  the 
following  cases:  Trustees  v.  Lawrence,  11  Paige,  80;  Voorhis  v. 
Childs,  17  N.  Y.  354;  Bennett  v.  Woolford,  15  Ga.  213.  Upon  an 
examination  of  the  New  York  cases,  it  appears  that  the  rule  there 
adopted  was  supposed  to  be  predicated  on  the  old  English  cases,  and 
when  the  courts  of  England  established  the  doctrine  which  is  laid 
clown  as  the  law  in  Devaynes  v.  Noble,  and  Wilkinson  /'.  Henderson, 
supra,  the  New  York  courts  refused  to  follow  the  English  rule,  but 
adhered  to  what  was  supposed  to  be  the  law  in  England  as  declared  in 
that  court  prior  to  that  time.  Georgia  seems  to  follow  the  New  York 
rule. 

In  a  late  case  in  Wisconsin  (Sherman  v.  Kreul,  42  Wis.  33)  the 
Supreme  Court  say  :  "  We  are  disposed  to  adopt  the  New  York  rule, 
that  in  order  to  recover  against  the  administrators  the  plaintiff  should 
allege  and  show  that  the  surviving  partner  is  insolvent."  It  is  also 
claimed  by  appellant  that  the  New  York  rule  has  been  adopted  in 
North  and  South  Carolina,  Ohio  and  Pennsylvania;  but  without  stop- 
ping to  determine  precisely  what  the  rule  of  the  courts  of  these  States 
may  be,  we  are  satisfied  that  the  decided  weight  of  authority  is  in 
harmon}'  with  the  rule  adopted  in  this  State,  and  we  are  not  inclined 
to  change  the  rule  heretofore  adopted  in  this  State,  and  follow  the 
doctrine  established  by  the  courts  of  New  York  and  Georgia,  although 
we  fully  recognize  the  great  ability  of  those  courts. 

It  is  also  claimed  that  Silverman  v.  Chase  is  in  conflict  with  Moline 
Water  Power  and  Manf.  Co.  v.  Webster,  26  111.   233,  and  Pahlman  v. 


§  5.]  DEATH   OF   A   PABTNEB.  499 

Graves,  Id.  405.  This  position  is,  in  our  judgment,  based  upon  a  rnis- 
apprehension  of  those  cases.  In  those  cases  there  was  a  controversy 
between  partnership  and  individual  creditors,  and  the  principle  of 
marshalling  assets  was  applied,  as  it  should  have  been.  Where  there 
are  individual  creditors  and  partnership  creditors,  there  is  no  doubt  in 
regard  to  the  law  that  all  individual  creditors  have  a  prior  claim  against 
the  individual  assets,  ami  partnership  civditors  have  a  prior  claim 
against  firm  assets,  and  an  individual  creditor  would  have  the  right  to 
insist  that  no  part  of  the  separate  assets  should  be  taken  and  applied 
in  payment  of  firm  debts  until  all  separate  debts  had  been  paid  in  full. 
This  familiar  rule  was  applied  in  the  two  cases  referred  to,  and  also  in 
the  case  of  Ladd  v.  Griswold,  4  Gilm.  25.  Bui  there  is  no  con 
between  individual  and  partnership  creditors  here,  and  hence  the  doc- 
trine of  marshalling  assets  does  not  apply.  In  this  case  no  claims  had 
been  presented  or  allowed  against  the  estate  of  any  character,  except 
the  one  in  controversy,  and  no  individual  creditor  is  resisting  the 
allowance  of  the  claim. 

But  independent  of  the  authorities,  we  are  satisfied  that  the  rule 
holding  the  estate  of  a  deceased  partner  primarily  liable  in  equity,  is 
sound  in  principle.  Doggett,  in  his  lifetime,  was  individually  liable  for 
his  debt,  and  if  he  had  been  sued,  and  a  judgment  obtained  agaiust 
him,  any  of  his  individual  property  would  have  been  liable  to  be  taken 
and  sold  in  satisfaction  of  the  debt.  It  is  true,  if  he  had  been  sued  at 
law  in  his  lifetime,  it  would  have  been  necessan-  to  join  his  partners 
as  defendants  in  the  action  ;  but  after  judgment,  it  was  not  necessary 
to  exhaust  the  partnership  assets  before  individual  property  could  be 
taken,  but  the  creditor  could  resort  to  such  property  in  the  first  in- 
stance, if  he  saw  proper.  Did  the  death  of  Doggett  in  any  manner 
change  the  liability  which  existed  on  this  contract  before  his  death  ? 
We  think  not.  The  liability  continued  as  before,  but  the  remedy  to 
enforce  that  liability  was  changed  from  a  court  of  law  to  a  court 
exercising  equitable  powers.  Before  his  death  the  liability  could  only 
be  enforced  by  a  joint  action  against  Doggett  and  his  partners  ;  after 
his  death  the  liability  continued,  but  could  only  be  enforced  in  the 
Probate  Court,  which  in  the  allowance  of  claims  exercises  equitable 
powers.  The  death  of  a  debtor  may  extinguish  a  legal  remedy  on  a 
joint  contract,  but  we  are  not  aware  that  it  has  ever  been  held  that  the 
death  of  a  debtor  could  extinguish  the  debt  or  discharge  the  estate  of 
the  deceased. 

In  conclusion,  we  are  satisfied,  under  the  facts  as  disclosed  by  this 
record,  appellee's  claim  was  a  proper  one  to  be  allowed  against  the 
estate  of  the  deceased,  and  that  it  was  properly  allowed  b\-  the  Probate 
Court. 

The  judgment  of  the  Appellate  Court  will  therefore  be  affirmed. 

Judgment  ajjinned. 


500  EIGHTS   AND    REMEDIES   OF   CREDITORS.  [CHAP.  V. 


ISLAND   SAVING'S   BANK  v.   GALVIN. 

36  At.  (R.  I.)  1125.     1896. 

Assumpsit  against  Catherine  Galvin,  as  executrix  of  Daniel  Galvin, 
on  a  promissory  note  for  $10,000,  to  the  order  of  plaintiff,  and  signed, 
"  Charles  C.  Peirce,  Daniel  Galvin,  Patrick  K.  Horgan."  Plea,  that 
the  promises  set  forth  in  the  declaration  were  made  by  the  defendant's 
testator  jointly  with  Horgan  and  Peirce,  as  co-partners,  doing  business 
under  the  firm  name  of  the  Newport  Laundry  Company,  and  were  the 
promises  of  the  co-partnership.     To  this  plea  the  plaintiff  demurred. 

IF.  P.  Sheffield,  Jr.,  for  plaintiff. 

C.  A.  Ives,  for  defendant. 

Matteson,  C.  J.  The  note  sued  on  does  not  purport  to  be  a  note  of 
the  Newport  Laundry  Company,  a  partnership  composed  of  the  three 
persons  who  were  the  makers  of  the  note.  It  is  simply  the  joint  note  of 
those  persons,  of  whom  the  defendant's  testator  was  one.  The  Judi- 
ciary Act,  ch.  13,  §  17;  G.  L.  R.  I.  ch.  233,  provides  that,  ''Unless 
otherwise  provided  in  the  contract,  upon  the  death  of  an}'  joint  con- 
tractor, his  representatives  ma}*  be  charged  in  the  same  manner  as  such 
representatives  might  have  been  charged  if  such  contract  had  been 
several  instead  of  joint :  provided,  that  the  plaintiff  shall  first  exhaust 
the  partnership  estate  if  such  contract  is  a  partnership  contract. " 

As  the  note  does  not  purport  to  be  a  partnership  contract,  and  does 
not  provide  in  it  that  on  the  death  of  either  of  the  makers  his  repre- 
sentatives shall  not  be  charged  as  if  the  contract  had  been  several 
instead  of  joint,  we  are  of  the  opinion  that  the  suit  is  in  accordance 
with  the  statute  quoted  ;  and,  therefore,  that  it  is  properly  brought 
against  the  defendant  as  the  representative  of  the  deceased.  The 
demurrer  to  the  first  plea  in  bar  is  sustained,  and  the  plea  is  over- 
ruled. 


CHAPTER  VI. 

DUTIES  AND  LIABILITIES  OF    PARTNERS   INTER  SE. 

§  1.     The   Utmost   Good   Faith. 

BLOOM  et  al.  v.  LOFGREN  et  al. 
6-4  Minn.   1:   05  N.  W.  960.     1896. 

Action  for  the  dissolution  of  a  partnership  and  an  accounting.  The 
trial  court  found  that  the  parties  formed  a  partnership  for  the  purpose 
of  buying  and  owning  a  certain  stallion  ;  that  Lofgren  was  intrusted 
with  the  purchase  of  the  horse  ;  that  he  had  previously  bought  the  horse 
for  Si, 200,  but  the  partners,  with  one  exception,  were  ignorant  of  the 
fact;  that  the  partnership  paid  him  §1,800  with  which  to  pay  for  the 
horse,  and  that  he  then  reported  that  he  had  bought  the  horse  for 
the  partnership  for  that  sum,  and  produced  a  receipt  for  81,800,  pur- 
porting to  be  from  the  pretended  owner  for  the  price  ;  that  Lofgren  was 
indebted  to  the  partnership  in  the  sum  of  S600  and  interest.  From  an 
order  decreeing  a  motion  for  a  new  trial,  Lofgren  appealed. 

O.  J.  Vautt  &  31.  A.  Brattland,  for  appellant. 

Calkins  &  Sharpe,  for  respondents. 

Collins,  J.  .  .  .  On  April  15,  1891,  it  was  agreed  that  Lofgren 
should  purchase  the  horse  in  question  of  the  supposed  owner,  Walker, 
for  cash,  for  the  association  ;  that  he  should  buy  for  81,800,  if  he  could 
not  buy  for  a  less  sum  ;  that  he  should  advance  the  necessary  money  ; 
and  that  he  should  take  the  notes  of  such  persons  as  could  not  make 
immediate  payment,  payable  at  a  future  time,  bearing  10  per  cent 
interest.  This  was  the  final  contract,  and,  as  before  stated,  modified 
or  entirely  superseded  the  writing.  If  Lofgren  had  previously  pur- 
chased the  horse  at  81,200,  —  and  it  was  admitted  that  he  had,  — he 
fraudulently  imposed  upon  those  with  whom  he  was  dealing,  his  actual 
or  proposed  co-partners  in  the  transaction.  The  law  will  not  permit 
him  to  retain  and  enjoy  the  fruits  of  his  fraudulent  representations  thai 
Walker  was  still  the  owner,  that  the  lowest  cash  price  was  81,800,  and 
his  later  representations  of  the  same  nature,  that  he  had  bought  the 
animal  as  authorized,  and  had  paid  81,800  for  him.  In  their  dealings 
with  each  other,  partners  occupy  positions  of  trust,  and  are  required  to 
exercise  the  most  scrupulous  good  faith  towards  each  other.  Nor  is 
this  requirement  confined  to  persons  who  are  actually  co-partners,  but 
it  extends  to  those  negotiating  for  a  partnership  not  yet  formed.     All 

of  the  findings  of  fact  were  supported  by  the  evidence. 

Order  affirmed- 


502        DUTIES   AND   LIABILITIES   OF    PARTNERS   INTER   SE.      [CHAP.  VL 

HARLOW   v.    LA   BRUM. 

151  N.  Y.  278:  45  N.  E.  859.     1897. 

Gray,  J.  The  plaintiff  brought  this  action  for  the  dissolution  of  a 
co-partnership  between  the  parties,  and  for  an  accounting.  After  the 
commencement  of  the  action,  the  defendant  discovered  that  a  fraud 
had  been  practised  upon  him,  through  which  he  had  been  induced  to 
enter  into  the  co-partnership.  It  consisted  in  fraudulent  representa- 
tions made  by  the  plaintiff  as  to  the  cost  of  a  certain  stock  of  merchan- 
dise, which  he  put  into  the  co-partnership,  and  the  half  of  which,  as 
represented,  the  defendant  had  paid  in  compliance  with  his  co-partner- 
ship agreement.  He  thereupon  interposed  an  answer  setting  up  the 
fraud  of  the  plaintiff,  and  asking  judgment  to  the  effect  that  there  had 
never  existed  an}-  partnership  between  the  parties  ;  that  the  agreement 
of  partnership  be  set  aside  ;  and  that  the  plaintiff  be  decreed  to  restore 
to  him  the  consideration  which  he  had  paid  on  entering  into  the  co- 
partnership. Upon  trial  of  the  issues,  the  court  found  that  the  repre- 
sentations made  by  the  plaintiff  to  the  defendant  as  to  the  cost  of  the 
stock  of  merchandise  in  question  were  false,  and  were  made  to  induce 
the  defendant  to  enter  into  the  co-partnership  agreement ;  that  they 
were  known  by  the  plaintiff  to  be  false  when  he  made  them  ;  and  that 
the  defendant  relied  upon  and  believed  them,  and,  except  for  the  same, 
would  not  have  formed  such  partnership.  These  findings  were  amply 
supported  b}'  the  evidence.  Judgment  was  directed  and  entered  declar- 
ing the  co-partnership  agreement  void  ;  directing  the  receiver  in  the 
action,  after  paying  the  outstanding  debts  of  the  co-partnership,  to  pa}' 
to  the  defendant  the  money  he  had  paid  to  the  plaintiff,  with  interest 
thereon;  and  directing  the  plaintiff  to  deliver  to  the  defendant  a  due- 
bill  which  he  held  for  the  balance  of  the  purchase  price  for  a  half 
interest  in  the  stock  of  merchandise.  The  trial  court  also  found  that 
the  defendant  had  drawn  out  of  the  firm  $6  a  week  for  his  living 
expenses,  as  was  permitted  by  the  articles  to  each  party,  but  that  the 
services  of  the  defendant  were  worth  $12  per  week.  Upon  appeal  by 
the  plaintiff  from  the  judgment  recovered  b}-  the  defendant,  the  General 
Term  affirmed  the  same,  and  I  think  nothing  need  be  added  to  the  very 
satisfactory  opinion  rendered  at  the  General  Term  upon  the  affirmance. 
But,  as  the  plaintiff,  who  now  appeals  to  this  court,  contends  that  the 
General  Term  erred  in  reasoning,  that  the  rule  of  law  has  no  application 
to  the  case  which  requires  a  party,  in  order  to  successfully  invoke  the 
aid  of  the  court,  to  show  that  he  has  been  damaged  in  a  financial  sense, 
a  brief  expression  of  our  views  may  not  be  inappropriate. 

The  question  of  whether  a  money  damage  has  been  sustained  by  the 
party  who  has  been  induced  to  enter  into  a  partnership  relation  through 
fraudulent  representations  has  nothing  to  do  with  the  decision  of  the 
case  presented  for  the  avoidance  of  the  partnership  agreement.  The 
true  principle  by  which  the  court  is  to  be  guided  in  such  a  case  is  that 


§  1-]  THE    UTMOST    GOOD   FAITH.  503 

the  party  deceived  has  a  right  to  have  the  agreement  wholly  set  aside. 
If  it  has  been  obtained  by  fraud,  he  is  entitled  to  say  that  the  misrepre- 
sentations vitiate  the  contract.      Rawlins  v.  Wickham,  o  De  Ges  & 

J.  304.  As  was  said  by  Lord  Justice  Turner  in  that  case  :  ••  We  can- 
not assume  from  what  was  done  in  ignorance  of  the  misrepresentation 
what  would  have  been  done  if  the  misrepresentation  had  been  detected." 
The  relation  of  partners  is  one  implying  the  highest  degree  of  mutual 
confidence,  as  it  was  well  observed  in  the  opinion  below;  and.  if  the 
contract  of  partnership  was  initiated  by  fraud,  it  is  thereby  avoided 
and  annulled.  The  person  fraudulently  induced  to  enter  into  the  part- 
nership is  entitled  to  a  decree  cancelling  the  partnership  agreement  "1> 
initio,  as  he  can  also  have  an  action  for  the  deceit.  2  Bates,  Tartu. 
§  .V.'."-  ;   Pars.  Partn.    (2d  ed.)   p.  *467. 

The  trial  court  having  found  the  making  of  the  false  representations, 
with  the  fraudulent  intention  to  induce  the  defendant  to  enter  into  the 
partnership,  no  rule  of  law  and  no  principle  of  equity  stood  in  the  wav 
of  its  decreeing  the  cancellation  of  the  agreement,  and  in  its  directions 
as  to  the  judgment  to  which  the  defendant  was  entitled  it  followed  the 
requirement  of  the  rule  in  such  cases,  as  it  may  be  found  laid  down  in 
the  books.  See  Bigelow,  Fraud,  629,  and  cases  cited  there.  The 
judgment  should  be  affirmed,  with  costs.     All  concur. 

Judgment  affirmed. 


LATTA   v.    KILBOUKX   et   al. 
150  U.  S.  524:  11  Sup.  Ct.  201.     1893. 

Jackson,  J.  The  appellees,  as  members  of  a  dissolved  co-partnership, 
brought  this  suit  against  the  appellant,  another  member  thereof,  for  an 
account  of  profits  made  by  the  latter  in  certain  transactions  alleged  to 
have  been  within  the  scope  of  the  partnership  business,  and  which,  as 
claimed,  it  was  his  duty  to  have  conducted  for  the  benefit  of  the  firm 
instead  of  for  his  individual  advantage. 

The  material  facts  of  the  case,  as  disclosed  by  the  pleadings  and 
proofs,  are  as  follows:  In  18G5  there  existed  in  the  city  of  Washington 
a  co-partnership  composed  of  R.  M.  Hall.  C.  II.  Kirkendall.  and  Ilallet 
Kilbourn,  under  the  name  of  Hall,  Kilbourn,  &  Co.,  which  was  formed 
for  the  purpose  of  carrying  on  the  business  of  "  real-estate  brokers  ami 
auctioneers."  The  scope  of  this  partnership,  as  indicated  by  the  nature 
of  its  business,  was  one  of  agency,  and  consisted  in  negotiating  and 
making  sales  and  purchases  of  real  property  for  the  account  of  others. 

In  the  latter  part  of  1865,  Kirkendall  withdrew  from  the  linn,  and 
the  appellant,  Latta,  acquired  and  succeeded  to  Hall's  interest  therein, 
and  thereafter  the  business  of  the  co-partnership  was  conducted  under 
the  name  of  Kilbourn  &  Latta.  These  changes  in  the  membership  of 
the   firm  were  attended  with  no  change  in  the  nature  and    scope   of 


504        DUTIES   AND   LIABILITIES    OF   PARTNERS    INTER   SE.      [CHAP.  VI. 

the  partnership  business,  which  continued  the  same  after  Latta  came 
into  the  firm  as  before,  except  that  the  business  of  auctioneers  was 
discontinued. 

The  partnership  agreement  of  the  former  firm,  as  well  as  that  of 
Kilbourn  &  Latta,  was  in  parol,  and  the  business  of  each,  as  proclaimed 
to  the  world  by  their  advertising  cards  in  the  newspapers,  by  the  sign 
at  the  firm's  place  of  business,  by  letter  heads,  and  as  published  in  the 
city  directory,  was  that  of  "real-estate  and  note  brokers,"  and  con- 
sisted in  buying  and  selling  real  estate  on  commission,  renting  houses, 
and  negotiating  loans.  Kilbourn  &  Latta,  as  a  firm,  had  no  capital, 
and  owned  no  property  except  a  few  articles  of  office  furniture  of  little 
value  ;  nor  was  there  any  agreement,  arrangement,  or  provision  made 
by  which  capital  was  to  be  supplied  for  the  use  of  the  firm,  if  any  should 
be  needed  or  required  in  the  conduct  of  its  business.  The  personal 
services  of  the  partners  constituted  the  only  means  of  carrying  on  the 
business  of  the  firm,  and  each  member  was  to  share  equally  in  the  profits 
and  losses  of  the  business.  Kilbourn  was  without  means,  while  Latta 
was  possessed  of  considerable  property. 

During  the  existence  of  this  partnership,  which  continued  from  1866 
to  January  1,  1871,  each  member  of  the  firm,  with  the  knowledge  of  his 
co-partner,  purchased  real  estate  and  other  property  on  his  private  or 
individual  account,  and  no  question  was  ever  made  by  either  partner  of 
the  right  so  to  do,  nor  did  either  partner  ever  claim  that  the  profits 
realized  on  such  purchases  should  be  treated  as  belonging  to  the  firm, 
or  were  subject  to  division  among  its  members.  By  special  agreement, 
and  as  a  special  venture,  the  partners  purchased  on  firm  or  joint  account 
two  parcels  of  land  on  speculation  ;  the  mone}T  to  make  the  purchases 
being  advanced  by  Latta,  in  whose  name  the  title  was  taken.  In  the 
same  way,  by  special  agreement,  they  purchased  bonds  and  other 
securities,  and  special  accounts  of  such  transactions  were  kept  upon  the 
firm's  books.  In  several  instances  the  partners  by  special  and  mutual 
agreement,  in  lieu  of  commissions,  took  a  share  of  the  profits  in  propert}' 
purchased  and  sold  for  the  account  of  others,  without  assuming  or 
incurring  any  responsibilit}-  for  losses. 

The  two  purchases  of  real  estate  on  joint  account,  as  well  as  those 
in  which  the  partners  of  the  firm  took  a  share  of  profits  in  lieu  of  com- 
missions, were  special  ventures  in  each  case,  entered  into  after  special 
agreement  between  the  partners,  and  were  in  no  sense  within  the  terms 
or  objects,  expressed  or  implied,  of  their  regular  partnership  business. 
The  scope  and  character  of  the  firm's  business  did  not  extend  to  the 
buying  and  selling  of  real  estate  on  account  of  the  firm.  It  had  no 
capital  for  that  purpose,  and  no  arrangements  were  provided  by  which 
it  was  to  be  supplied.  The  profits  of  the  business  were  drawn  and  dis- 
tributed as  fast  as  earned. 

On  January  1,  1871,  John  F.  Olmstead,  who  had  been  for  many 
years  a  clerk  for  Kilbourn  &  Latta  at  an  annual  salary  of  twelve  or 
fifteen  hundred  dollars,  was  admitted  as  a  partner  into  the  firm.     The 


§  1.]  THE    UTMOST    GOOD    FAITH.  505 

new  partnership  carried  on  its  business  under  the  same  firm  name  of 
Kilbourn  &  Latta.  the  respective  interests  of  the  partners  being-  three- 
eighths  of  the  profits  of  the  business  each  to  Kilbourn  and  Latta  and 
two-eighths  to  Olmstead.  This  new  firm,  like  the  former,  had  no 
written  articles  of  co-partnership.  The  scope  and  character  of  its 
business,  as  well  as  the  respective  interests  of  the  partners  therein, 
rested  in  parol.  Olmstead  brought  no  means  into  the  concern,  and 
neither  the  firm  nor  any  member  thereof,  except  Latta.  possessed  any 
property  or  capital.  There  was  not  only  no  provision  or  agreement  for 
the  accumulation  of  firm  capital,  but  the  course  of  business  was  directly 
the  reverse,  the  habit  of  the  partners  being  to  draw  against  their 
respective  shares  of  the  profits,  and  on  December  31st  of  each  year  the 
accounts  were  adjusted,  and  whatever  balance  each  member  of  the  linn 
had  to  his  credit  was  drawn  out  of  the  firm  and  placed  to  his  individual 
credit.  The  profits  of  the  business,  in  which  alone  the  partners  were  to 
share,  were  thus  annually  divided  and  distributed  according  to  their 
respective  interests. 

Under  this  new  firm,  as  under  the  old,  the  scope  and  character  of  its 
business,  as  indicated  and  made  known  to  the  public  through  the  sign 
over  its  place  of  business,  in  the  cards  which  it  advertised,  in  the  city 
directory,  and  its  letter  heads  and  envelopes,  was  that  of  "  real-estate 
and  note  brokers."  Aside  from  the  scope  and  character  of  the  firm's 
business  as  thus  described  and  brought  to  the  notice  of  the  public,  each 
of  the  three  partners  testified  that  the  new  partnership  was  a  continua- 
tion of  the  business  of  the  former  firm  of  Kilbourn  &  Latta.  .   .   . 

This  firm  continued  in  existence  from  January  1,  1871,  to  January  1, 
1877,  when  it  was  dissolved.  During  this  period  one  or  more  parcels 
of  land  were  purchased  as  a  speculation  on  joint  account  by  the  mem- 
bers of  the  firm,  after  special  agreement  so  to  do  had  been  entered  into 
between  them.  These  transactions,  like  those  of  the  former  firm,  were 
special  ventures,  entered  into  after  a  special  agreement  between  the 
partners  to  make  the  particular  purchases.  Bonds  and  other  securities 
were  also  purchased  from  time  to  time  under  and  in  pursuance  of 
special  agreement  between  the  partners. 

These  bond  transactions  were  entered  upon  the  books  of  the  firm 
under  what  is  called  the  "  Bond  Account,"  while  the  joint  real-estate 
transactions  were  kept  under  an  account  styled  or  headed  "  Kilbourn, 
Latta,  &  Olmstead."  This  new  firm  did  not,  however,  in  any  cast- 
make  an}'  speculative  purchases  of  real  estate  on  joint  account  with 
others,  or  upon  any  agreement  or  arrangement  to  take  a  share  of  the 
profits  in  lieu  of  commissions.  All  the  transactions  on  either  firm  or 
joint  account,  other  than  the  brokerage  business  of  the  co-partnership, 
were  discussed  and  specially  agreed  upon  before  they  were  entered  into. 

Purchases  on  his  individual  account  were  made  by  Latta,  the  appel- 
lant, during  the  existence  of  the  firm,  with  the  knowledge  of  one  or 
both  of  the  other  partners,  and  without  objection  being  made  thereto. 
Among  other  purchases  made  by  him  in  his  individual  name  and  for  his 


506       DUTIES    AND    LIABILITIES    OF   PARTNERS   INTER   SE.      [CHAP.  VI. 

individual  account,  were  lots  34,  35,  and  36,  in  square  No.  445,  in  the 
city  of  Washington,  designated  as  the  "  Thyson  Lots,"  on  the  sale  of 
which  profits  were  made  b}-  him.  Olmstead  knew  of  the  purchase  of 
these  lots  as  early  as  1873,  and  neither  made  objection  thereto  nor  set 
up  any  claim  on  behalf  of  the  firm  or  of  the  partners  thereof  to  a  share 
of  the  profits  made  b}r  Latta  from  the  sale  of  the  same. 

In  December,  1871,  Latta  entered  into  an  agreement  with  Dr.  Stearns 
by  which  they  undertook  to  engage  in  the  buying  and  selling  of  real 
estate  in  the  District  of  Columbia  on  joint  speculation,  upon  the  terms 
that  the  capital  to  be  invested  should  be  furnished  by  Stearns,  which, 
with  interest,  was  to  be  first  paid  out  of  the  proceeds  of  the  sales  of 
the  property  to  be  bought,  and  after  the  payment  of  all  expenses  the 
net  profits  of  the  speculation  should  be  equally  divided  between  the 
parties.  Each  party  was  to  be  equally  responsible  for  any  losses  that 
might  be  sustained.  Under  this  arrangement  between  them  a  number 
of  lots  and  parcels  of  land  were  purchased  in  1872  ;  the  titles  to  which 
were  taken  generally  in  the  name  of  Stearns,  but  in  one  or  more  instances 
the  title  to  property  purchased  was  taken  in  the  name  of  Latta.  The 
purchases  and  sales  of  the  lots  and  parcels  of  ground  made  b}"  Stearns 
and  Latta  on  joint  account  were  conducted  through  the  firm  of  Kilbourn 
&  Latta,  and  were  entered  upon  their  books,  and  the  firm  received  the 
regular  commissions  thereon,  which  amounted  to  about  $5,000. 

Before  these  purchases  on  joint  account  were  closed  out  and  the 
profits  thereon  were  realized  and  distributed,  Stearns,  under  date  of 
July  30,  1872,  executed  and  delivered  to  Latta  a  certificate,  which 
recited  that  the  real  estate  purchased  under  their  arrangement  was  held 
by  him  on  joint  account,  and  that  the  terms  of  the  joint  account  were 
as  follows  : 

"  The  cash  payments  have  been  made  b}-  me  ;  the  future  or  deferred 
payments,  principal  and  interest  and  taxes,  are  to  be  paid  by  me.  I 
am  to  determine  when,  at  what  price,  and  on  what  terms,  any  portion 
of  it  may  be  sold ;  and  when  any  proportion  of  it  is  sold  I  am  to  be 
repaid  all  the  rnone}7  I  have  paid  out  on  account  of  that  portion,  with 
six  per  centum  interest  on  the  amount.  Then,  after  all  costs  and 
expenses  of  the  sale  shall  have  been  paid,  the  net  profits  are  to  be 
divided  equally  between  the  said  Latta  and  myself.  John  Stearns.  Mr. 
Latta  has  a  copy  of  this." 

While  this  certificate  of  Stearns  does  not  mention  losses,  it  is  satis- 
factorily shown  that  Latta  was  to  divide  the  losses  in  the  event  the 
property,  when  sold,  did  not  realize  costs  and  expenses  ;  and  in  one 
instance  he  did  divide  with  Dr.  Stearns  the  loss  upon  a  parcel  of  ground 
purchased  on  joint  account.  For  some  of  the  purchases  made  on  joint 
account  with  Stearns,  Latta  executed  his  individual  notes,  and  in  the 
course  of  the  business  drew  from  and  deposited  with  the  firm  of-  Kil- 
bourn &  Latta  funds  for  the  account  of  Stearns  growing  out  of  their 
joint  enterprises. 

While  Latta  did  not  consult  his  co-partners,  or  obtain  their  assent 


§  1.]  THE    UTMOST   GOOD   FAITH. 

to  his  engaging  with  Stearns  in  the  joint  purchases  of  real  estate,  he 
took  no  means  of  concealing  it.  and  we  are  satisfied  from  the  testimony 
in  the  case  that  Olmstead  knew  of  these  transactions  of  Latta  with 
Stearns  as  early  as  1873.  lie  admits  that  he  had  a  suspicion  of  it  in 
187-i.  The  bookkeeper  of  the  concern  states  that  he  cannot  understand 
how  the  other  members  could  fail  to  know  of  it:  and  a  disinterested 
witness,  William  II.  Philip,  testified  that  about  May.  1873,  when  he 
inquired  for  Latta  at  the  office  of  the  firm,  Mr.  Olmstead  stated  that 
Mr.  Latta  had  gone  to  Europe,  and  in  reply  to  the  question  whether  for 
business  or  pleasure  further  stated  that  "  Mr.  Latta  had  just  closed  out 
some  real  estate,  or  perhaps  a  huge  amount  of  real  estate,  that  he  and 
Dr.  Stearns  were  interested  in,"  and  that  a  part  of  his  business  in 
going  to  Europe  was  to  see  Dr.  Stearns,  and  settle  up  their  matters. 

This  direct  testimony,  in  connection  with  the  facts  and  circumstances' 
surrounding  the  transaction  of  the  business,  leaves  little  or  no  room  to 
doubt  that  Olmstead  knew  of  the  joint  enterprises  of  Stearns  and  Latta 
as  early  as  1873. 

This  second  firm  of  Kilbourn  &  Latta  was  dissolved  in  January,  1877, 
and,  thereafter,  in  November,  1877,  the  appellees  tiled  their  bill  against 
the  appellant,  in  which,  after  reciting  many  of  the  facts  already  stated, 
the}-  claim  that  the  purchases  of  the  Thyson  lots  and  the  joint  purchases 
made  with  Stearns  were  properly  partnership  transactions,  and  that  he 
(Latta)  was  accountable  to  them  for  the  profits  realized  out  of  the  same. 
The  bill  alleged  that  the  profits  realized  from  the  purchases  made  with 
Stearns  amounted  to  about  the  sum  of  $45,000,  which  was  equally 
divided  between  Stearns  and  Latta,  and  that  no  part  thereof  was  turned 
over  to  the  firm  of  Kilbourn  &  Latta,  but  that  it  was  wrongfully  appro- 
priated I)}"  Latta  to  his  own  use.  The  complainants  further  averred  that 
they  had  no  knowledge  of  these  transactions  of  Latta  ami  Stearns  until 
after  the  dissolution  of  the  partnership,  and  that  Latta  had  conducted 
the  same  secretly,  and  thereby  had  defrauded  the  complainants.  .  .   . 

After  voluminous  proofs  had  been  taken,  the  cause  came  on  to 
be  heard  in  the  Supreme  Court  of  the  District  of  Columbia,  October 
27,  188C,  when  the  complainants  abandoned  all  claims  against  the 
defendant  on  account  of  the  matters  relating  to  the  Thyson  pur- 
chases, and  thereupon  the  following  decretal  order  was  entered : 
"  That  the  complainants  are  entitled  to  recover  from  said  defend- 
ant their  full  share,  viz.,  five-eighths  of  all  profits  realized  by  said 
defendant  from  said  sales  of  real  estate  referred  to  in  the  pleadings  and 
proof  in  this  cause,  made  by  said  John  Stearns  and  said  defendant,  with 
interest  thereon  from  the  time  when  the  same  were  so  realized,  and  it 
is,  this  27th  day  of  October,  a.  d.  1880,  ordered,  adjudged,  and  decreed 
that  said  defendant  do  account  to  the  complainants  for  their  said  share; 
of  the  profits  aforesaid;  that  this  cause  be,  and  the  same  hereby  is, 
remanded  to  the  court  in  special  term,  with  instructions  to  refer  the 
same  to  the  auditor  of  the  court  to  state  said  account  upon  the  proofs 
in  the  cause,  and  such  further  proofs  as  the  parties  may  offer,  and   for 


508       DUTIES   AND   LIABILITIES    OF    PARTNERS    INTER   SE.      [CHAP.  VI 

such  further  proceedings  as  may  be  lawful  and  proper  under  this  decree  ; 
and  that  said  defendant  pay  all  costs  of  the  cause."    5  Mackey,  304. 

In  accordance  with  that  decree  the  cause  was  referred  to  the  auditor 
of  the  court,  who,  after  taking  further  proof,  made  his  report,  showing 
that  there  was,  on  January  1,  1888,  due  the  complainants  from  the 
defendant  on  account  of  the  latter' s  real-estate  transactions  with  Stearns 
the  sum  of  $21,562.59,  with  interest  on  $12,030.50  thereof  from  that 
date  until  paid.  This  report  was  excepted  to,  but  the  exceptions  were 
overruled,  and  the  report  was  confirmed  November  30,  1888,  and  a 
decree  entered  in  favor  of  the  complainants  against  the  defendant  for 
the  amount  reported  and  costs  of  the  suit.  From  this  decree  the  present 
appeal  is  prosecuted.  .   .   . 

The  court  below  based  its  opinion  upon  two  grounds  :  First,  that  the 
scope  of  the  co-partnership  business  and  agreement,  as  alleged  in  the 
third  paragraph  of  the  bill  (quoted  above),  was  established,  and  that 
the  appellant  could  not  engage  in  purchases  of  real  estate  on  his  own 
account  or  in  connection  with  others,  except  by  the  consent  of  his 
co-partners,  without  violating  the  dut}'  and  obligation  which  he  owed 
to  his  firm;  and,  secondly,  that  even  if  the  co-partnership  did  not 
include  the  business  of  buying  and  selling  real  estate  on  partnership 
account,  still  the  appellant  could  not  employ  the  knowledge  and  infor- 
mation acquired  in  the  course  of  the  partnership  business  in  respect 
to  the  real-estate  market  in  making  purchases  or  transactions  for  his 
own  benefit. 

The  general  principles  on  which  the  court  proceeded  admit  of  no 
question,  it  being  well  settled  that  one  partner  cannot,  directly  or 
indirectly,  use  partnership  assets  for  his  own  benefit ;  that  he  cannot, 
in  conducting  the  business  of  a  partnership,  take  any  profit  clandes- 
tinely for  himself;  that  he  cannot  carry  on  the  business  of  the  partner- 
ship for  his  private  advantage;  that  he  cannot  carry  on  another  business 
in  competition  or  rivalry  with  that  of  the  firm,  thereby  depriving  it  of 
the  benefit  of  his  time,  skill,  and  fidelity,  without  being  accountable  to 
his  co-partners  for  any  profit  that  may  accrue  to  him  therefrom  ;  that 
he  cannot  be  permitted  to  secure  for  himself  that  which  it  is  his  duty 
to  obtain,  if  at  all,  for  the  firm  of  which  he  is  a  member ;  nor  can  he 
avail  himself  of  knowledge  or  information  which  may  be  properly 
regarded  as  the  property  of  the  partnership,  in  the  sense  that  it  is 
available  or  useful  to  the  firm  for  any  purpose  within  the  scope  of  the 
partnership  business. 

It  therefore  becomes  necessary,  in  testing  the  liability  of  the  appel- 
lant to  account  for  the  profits  realized  from  the  transactions  with 
Stearns,  to  consider  and  ascertain  what  was  the  scope  of  the  partner- 
ship agreement  in  reference  to  the  purchase  and  sale  of  real  estate. 
This  is  the  underlying  and  essential  fact  on  which  rests  the  proper 
determination  of  the  question  whether  the  appellant,  in  engaging  in  the 
joint  enterprises  with  Stearns,  violated  any  duty  or  obligation  which  he 
owed  to  the  firm  of  Kilbourn  &  Latta.     In  other  words,  the  question 


S  1.]  THE    UTMOST   GOOD    FAITH.  509 


5 


on  this  branch  of  the  case  depends  entirely  upon  this  :  Were  or  were 
not  those  transactions  within  the  scope  of  the  firm  business,  in  respect 
to  which  Latta  owed  a  duty  to  his  firm,  or  in  respect  to  which  he  could 
properly  be  said  to  be  the  agent  of  the  linn? 

In  his  answer,  which  was  called  for  under  oath.  Latta  positively  and 
in  direct  terms  denied  the  allegation  of  the  bill  that  it  was  ever  agreed 
that  the  linn  should  carry  on  the  luisiness  of  buying  and  selling  real 
estate  and  that  at  no  time  was  such  transaction  within  the  scope  of 
the  partnership  business. 

Under  the  well-settled  rules  of  equity  pleading  and  practice  his  an- 
swer must  be  overcome  by  the  testimony  of  at  least  two  witnesses,  or 
of  one  witness  with  corroborating  circumstances.     The  proofs  in  the 
present  case  not  only  fail  to  break  down  his  denial  on  this  point,  but, 
on  the  contrary,  affirmatively  establish  that  neither  under  the  first  nor 
the  second  firm  of  Kilbourn  &  Latta  did  the  partnership  agreement 
extend  to  the  business  of  buying  and  selling  real  estate  either  tor  in- 
vestment or  for  speculation  on  firm  account.     Neither  of  the  appellees 
testified  to  the  contrary.     The  appellee  Kilbourn,  when  pressed  upon 
the  question,  evaded  a  reply  thereto  ;  and  Olmstead,  in  his  sworn  tes- 
timony, failed  to  support  the  allegation  of  the   bill  as   made   on   that 
particular  subject.     On  the  other  hand  the  testimony  of  the  appellant 
fully  supported  the  denial  of  his  answer,  and  he  is  corroborated  by  all 
the  facts  and  circumstances  in  the  case,  such  as  the  character  of  the 
business   as   advertised  and  as   actually  conducted.     The  well-known 
characteristics  of  ''real-estate  and  note   brokers,"   indicating,   as  the 
words  imply,  those  engaged  in  negotiating  the  sale  and   purchase  of 
real  property  for  the  account  of  others,  afford  a  presumptive  limitation 
upon  the  scope  of  the  business,  such  as  the  appellant  asserted  and 
testified  to  in  this  case.     His   sworn   answer  and  testimony  on  this 
point  has  not  been  overcome  by  the  vague  and  equivocal  testimony  of 
the  appellees.     The  court  below  was  in  error  in  finding  as  a  matter 
of  fact  that  the  partnership  extended  to  the  buying  and  selling  of  real 
estate  for  the  account  of  the  firm.     There  is,  therefore,  no  right  on  the 
part  of  the  complainants  to  relief  in  this  cause,  based  upon  the  con- 
sideration that  the  scope  and  character  of  the  partnership  business 
embraced  the  purchase  and  sale  of  real  estate,  either  for  the  firm  alone 
or  jointly  with  others. 

The  further  allegation  of  the  bill  "  that  all  profits  resulting  from 
operations  in  real  estate  by  any  member  of  the  firm  of  Kilbourn  & 
Latta  during  the  existence  of  said  partnership  should  belong  to  said 
firm,  and  be  entered  upon  the  books  of  the  firm,  and  be  paid  into 
the  partnership  account;  and  that  no  member  of  said  linn  should 
engage  in  the  business  of  buying  and  selling  real  estate  in  the  said 
District  on  his  own  account,  or  with  any  other  person  or  persons. 
except  in  cases  where  the  proposed  transaction  had  been  explained  to 
the  said  firm,  and  the  firm  had  declined  to  take  any  part  therein,"  — 
was  also  positively  denied  by  the  answer  of  the  appellant  under  oath. 


510        DUTIES   AND    LIABILITIES    OF   PARTNERS   INTER    SE.      [CHAP.  VI. 

There  is  no  testimony  in  the  cause  to  overcome  that  denial.  On  the 
contrary,  the  evidence  establishes  that  there  was  no  such  restriction  or 
limitation  imposed  upon  the  individual  members.  So  that  the  com- 
plainants were  entitled  to  no  relief  on  that  ground. 

But,  aside  from  the  foregoing  questions  of  fact,  how  stands  the  case 
on  the  assumption  that  there  was  a  new  stipulation  or  agreement  when 
Olmstead  was  taken  into  the  firm  (as  claimed  by  Kilbourn  and  Olm- 
stead,  and  as  set  out  above)  that  knowledge  and  information  obtained 
by  any  member  of  the  firm  as  to  bargains  in  real  estate  should  be 
first  communicated  to  the  firm,  with  the  view  of  giving  the  firm,  or 
the  members  thereof,  the  first  opportunity  of  purchasing,  before  any 
individual  member  thereof  could  act  upon  such  knowledge  or  infor- 
mation for  his  own  benefit?  Can  the  agreement  to  furnish  information 
as  to  bargains  in  real  estate,  and  give  co-partners  the  option  of  taking 
the  benefit  of  such  bargains  be  considered  as  so  enlarging  the  scope  of 
the  partnership  business  as  to  include  therein  the  purchase  and  sale  of 
real  estate  on  joint  account?  It  would  be  a  perversion  of  language  and 
a  confusion  of  ideas  to  treat  such  a  stipulation,  if  it  were  clearly  estab- 
lished, as  creating  a  partnership  in  future  options  to  buy  what  did  not 
already,  by  the  terms  of  the  co-partnership,  come  within  the  scope  and 
character  of  the  partnership  business.  That  alleged  stipulation,  in- 
stead of  enlarging  the  partnership  business,  was  manifestly  a  restric- 
tion and  limitation  upon  the  power  and  authorit}"  of  the  co-partners  to 
bind  the  firm,  or  the  members  thereof,  in  any  real-estate  transaction, 
until  each  member  had  expressly  consented  or  agreed  to  join  in  the 
particular  purchase,  specially  submitted  for  consideration. 

By  the  well-settled  law  of  partnership  each  member  of  the  firm  is 
both  a  principal  and  an  agent  to  represent  and  bind  the  firm  and  his 
associate  partners  in  dealings  and  transactions  within  the  scope  of  the 
co-partnership.  No  express  authority  is  necessary  to  confer  this 
agency  or  fiduciary  relation  in  respect  to  the  business  of  the  firm.  If 
the  buying  and  selling  of  real  estate  was  a  part  of  the  business  of 
Kilbourn  &  Latta,  the  alleged  stipulation  about  giving  an  option  to 
the  firm  and  the  members  thereof  to  accept  special  bargains  would 
have  been  an  idle  arrangement.  But  under  the  alleged  stipulation 
each  and  every  purchase  of  real  estate  was  a  special  and  individual 
transaction  or  enterprise,  requiring  the  special  assent  and  agreement 
of  each  partner  thereto,  before  it  became  a  subject  of  partnership,  or 
was  brought  within  the  scope  of  the  partnership  business.  Under  the 
operation  of  the  agreement,  a  partner  who  purchased  real  estate,  either 
on  joint  or  partnership  account,  did  so  not  under  or  by  virtue  of  the 
partnership  articles,  or  under  authority  derived  from  the  partnership 
business  and  his  implied  agency  to  represent  the  firm  therein,  but 
solely  and  exclusively  from  the  special  assent  or  agreement  of  his 
associates  to  engage  in  that  particular  purchase.  So  that  each  parcel 
of  real  estate  to  be  acquired,  as  well  as  the  agreement  to  purchase  the 
same,  was  first  made  the  subject  of  a  special  arrangement.     It  is  diffi- 


§1.]  THE   UTMOST   GOOD   FAITH.  511 

cult  to  understand  how.  under  such  circumstances  and  conditions,  a 
co-partnership  could  properly  be  said  to  include  or  extend  to  the  busi- 
ness of  purchasing  and  selling  real  estate. 

The  special  subject  of  each  purchase,  as  admitted  by  Kilbourn.  — 
like  the  purchase  of  bonds  and  other  securities,  —  did  not  and  could 
not  come  within  the  operation  of  the  co-partnership,  or  become  a  part 
of  the  partnership  agreement  until  each  particular  piece  of  property 
had  been  selected  and  agreed  upon.  It  is  undoubtedly  true  that, 
under  this  alleged  agreement,  if  a  partner  hail  submitted  to  the  linn  or 
bis  associates  the  question  of  buying  a  particular  parcel  of  land,  and 
they  had  agreed  to  make  that  purchase,  he  would  thereafter  have 
occupied  an  agency  or  fiduciary  relation  in  respect  to  that  particular 
piece  of  property.  But  the  question  here  is  whether  his  failure  to  oive 
the  firm,  or  his  co-partners,  the  opportunity  of  making  an  election  to 
buy  certain  real  estate,  and  his  making  the  purchase  thereof  for  his 
own  account,  or  jointly  with  another,  is  such  a  violation  of  his  fiduciary 
relations  to  the  firm  and  his  associates  in  respect  to  co-partnership 
business  as  to  entitle  the  latter  to  call  him  to  account  for  profits  real- 
ized in  such  transactions.  In  other  words,  will  the  violation  of  his 
undertaking  to  give  to  the  firm,  or  his  associates,  the  opportunity  or 
option  to  engage  in  any  particular  transaction,  not  within  the  scope  of 
the  firm's  business,  entitle  the  co-partners  to  convert  him  into  a  con- 
structive trustee  in  respect  to  the  profits  realized  therefrom  ? 

That  the  members  of  the  firm,  prior  to  1871,  or  after  that  date,  by 
special  agreement,  made  purchases  of  particular  parcels  of  real  estate 
on  speculation  or  for  investment,  did  not  make  such  speculative  trans- 
actions a  part  of  the  partnership  business  so  as  to  invest  either  partner 
with  the  implied  authority  to  engage  therein  on  account  of  the  firm. 
The  name  of  the  firm  was  never,  in  fact,  used  in  such  special  ventuns. 
which  no  partner  had  authority  to  enter  into  except  and  until  the 
consent  of  the  others  had  been  specifically  obtained  so  to  do.  each 
instance  of  buying  on  firm  or  joint  account  being  the  subject  of  a  sepa- 
rate, special,  and  distinct  agreement. 

It  may  be  said  of  any  and  even'  partnership,  irrespective  of  its  regu- 
lar business,  that  by  consent  of  all  the  members  other  matters  beyond 
the  scope  of  the  partnership  may  become  the  subject  of  investment  or 
speculation  on  joint  account;  but  such  special  transactions  cannot 
properly  be  said  to  come  within  the  scope  of  the  partnership.  The 
very  fact  that  the  express  consent  of  each  partner  was  required  in 
order  to  engage  in  such  special  ventures  goes  clearly  to  show  that  the 
transactions  were  not  within  the  scope  of  the  partnership,  for,  if  they 
were,  special  consent  could  not  be  required  as  a  condition  precedent 
for  engaging  therein. 

Matters  within  the  scope  of  the  partnership  are  regulated  and  con- 
trolled by  a  majority  of  the  partners,  but  by  the  alleged  stipulation 
under  consideration  a  single  member  of  the  firm  could  control  the 
firm's  action  in  respect  to  purchases  of  real  estate.     This  is   in  con- 


512        DUTIES    AND   LIABILITIES    OF   PARTNERS   INTER   SE.      [CHAP.  VI. 

sistent  with  the  idea  that  the  business  of  the  firm  extended  to  such 
purchases. 

Again,  the  alleged  agreement  does  not  provide  how  such  future 
acquisitions  as  might  be  specially  selected  or  agreed  upon  for  specu- 
lation or  for  investment  were  to  be  paid  for,  or  in  what  proportion 
the  several  partners  should  be  interested  therein.  Neither  does  it  dis- 
tinctly appear  from  the  allegations  of  the  bill,  nor  from  the  testimony 
of  the  appellees,  whether,  in  acting  upon  information  given,  the  special 
purchases  were  to  be  made  for  the  account  of  the  partnership  or  for  the 
account  of  the  several  members  of  the  firm.  The  methods  of  keeping 
the  accounts  of  such  transactions  in  the  name  of  the  individual  members 
rather  than  in  the  name  of  the  firm  would  indicate  that  such  purchases 
were  for  the  benefit  of  the  separate  partners  rather  than  for  the  firm. 

There  is  no  allegation  in  the  bill,  nor  any  direct  statement  in  the 
testimony  of  the  appellees,  that  if  the  information  had  been  given 
as  to  the  Stearns  transactions,  either  the  firm  or  themselves  would 
have  exercised  the  option  of  engaging  therein  upon  the  conditions  of 
allowing  Stearns  to  determine  "  when,  at  what  price,  and  on  what  terms 
any  portion  of  the  real  estate  might  be  sold."  Neither  is  it  alleged  in 
the  bill,  nor  shown  by  the  proofs,  that  the  appellant  in  any  way  ne- 
glected the  partnership  business,  nor  that  the  firm  and  his  co-partners 
sustained  any  damage  whatever  from  the  transactions.  On  the  con- 
trary, it  is  shown  that  from  the  purchases  and  sales  of  the  property 
bought  on  joint  account  with  Stearns  the  firm  derived  its  regular 
commissions. 

This  alleged  new  stipulation  amounts,  if  it  has  any  legal  force  and 
operation,  simply  to  an  agreement  for  a  future  partnership,  or  the 
joint  acquisition  of  such  special  properties  as  might  by  mutual  and 
unanimous  consent  be  considered  as  holding  out  a  prospect  of  profit- 
able speculation  ;  and  at  most  could  only  be  regarded  as  an  agreement 
for  a  future  partnership  in  respect  to  such  properties  as  might  be 
specially  selected  for  speculation.  It  is  well  settled  in  such  cases  that 
no  partnership  takes  places  until  the  contemplated  event  actually 
occurs.  It  stands  upon  the  same  principle  as  an  option  to  become  a 
partner,  which  creates  no  partnership  until  the  option  is  actually 
exercised. 

If  the  stipulation  in  question  could  be  construed  into  an  agreement 
that  no  partner  should  engage  in  the  buying  and  selling  of  real  estate 
on  his  own  account,  would  that  entitle  the  other  members  of  the  firm 
to  share  in  the  profits  that  Latta  made  in  real-estate  speculations  with- 
out having  first  secured  the  consent  of  his  co-partners  to  his  engaging 
therein?     No  such  proposition  can  be  sustained. 

In  Murrell  v.  Murrell,  33  La.  Ann.  1233,  it  was  held  that  a  partner 
who,  in  violation  of  the  act  of  partnership,  enters  into  another  firm, 
does  not  thereby  give  the  right  to  his  original  co-partner  to  claim  a 
share  in  the  profits  of  the  new  firm.  The  violation  of  the  agreement 
may  give  rise  to  an  action  for  damages,  but,  inasmuch  as  the  origina. 


§  1.]  THE   UTMOST   GOOD    FAITH.  513 

co-partner  could  not  be  held,  without  his  consent,  for  the  debts  of  the 
new  firm,  he  cannot  claim  to  be  made  a  partner  therein. 

In  Dean  v.  Macdowell,  8  Ch.  Div.  345,  one  of  the  stipulations  in  the 
articles  of  co-partnership  was  that  "  said  C.  A.  Macdowell  should  dili- 
gently and  faithfully  employ  himself  in  and  about  the  business  of  the 
partnership,  and  carry  on  and  conduct  the  same  to  the  greatest  advan- 
tage of  the  partnership,"  and  by  another  article  it  was  stipulated  that 
neither  partner  should  "  either  alone  or  with  another  person,  either 
directly  or  indirectly,  engage  in  any  trade  or  business  except  upon  the 
account  and  for  the  benefit  of  the  partnership."     The  business  of  the 
firm  was  to  deal  as  merchants  and  brokers  in  selling  the  produce  of 
salt  works  on  commission,  and  during  its  existence  Macdowell  clandes- 
tinely purchased  a  share  in  a  firm  of  salt  manufacturers.     A  bill  was 
filed  by  the  other  partner  for  an  account  of  the  profits  realized  in  the 
new  business,  and  it  was  held  b}-  the  Master  of  the  Rolls  that  the  bill 
could  not  be  sustained.     On  appeal  this  judgment  was  affirmed.     Lord 
Justice  James,  after  stating  the  general  principles  of  partnership  law, 
said:   "The  business  which  the  defendant  has  entered   into   was   the 
business  of  manufacturing  salt,  which  was  to  be  the  subject  matter  of 
the  trade  of  the  first  firm.     If  in  that  he  had  in  any  way  deprived  the 
linn  of  any  profits  they  otherwise  would  have  made,  if  by  his  joining 
in  the  partnership  for  the  manufacture  he  had  diverted  the  trade  from 
the  firm  in  which  he  was  a  partner  to  some  other  firm,  I  can  see  that 
that  would  be  a  breach  of  his  duty  ;  but  it  is  not  pretended  or  alleged 
that  any  alteration  took  place  in  the  business  of  the  firm  by  reason  of 
his  having  become  a  partner  in  the  other  business.     It  is  not  pretended 
that   there  was   any   alteration   in  the  commission   or  anything   else. 
Everything  remained  exactly  as  it  was,  so  that  it  cannot  be  suggested 
that  there  was  a  farthing's  worth  of  actual  damages  done  to  the  origi- 
nal firm  by  reason  of  his  having  become  a  partner  in  the  works  which 
produced  the  articles  in  which  the  firm  traded.     Under  these  circum- 
stances it  seems  to  me  that  we  cannot  say  it  was  a  benefit  arising 
out  of  his  partnership.     It  was  not  a  benefit  derived  from  his  connec- 
tion with  the  partnership,  or  a  benefit  in  respect  of  which  he  was  in  a 
fiduciary  relation   to  the  partnership.     He    was   only  in   a   fiduciary 
relation  to  the  partnership   in    this  respect,   namely,   the  same   as  a 
covenantor  is  with  regard  to  any  other  covenantee  in  respect  of  any 
other  covenant  which  is  broken.     It  was  a  partner  entering   into  a 
covenant  with  a  partner;  still  it  was  simply  a  covenant  that  he  would 
not  do  something  which  would  result  in  damage.     But  it  was  not  a 
covenant  in  my  view,  which  was  in  any  way  connected  with  the  fidu- 
ciary relations  between  the  parties.     That  being  so,  it  seems  to  me 
that  the  Master  of  the  Rolls  was  right  in  saying  that  you  cannot  extend 
the  cases  with  regard  to  sharing  in  the  profits  to  a  case  in  which,  as 
between  these  parties,  there  was  really  nothing  but  a  breach  of  cove- 
nant, which  breach  in  truth  did  not  result  and  could  not  have  resulted 
in  a  farthing's  worth  of  loss  to  the  partnership,  unless,  indeed,  it  could 

33 


514       DUTIES   AND   LIABILITIES    OF    PAKTNERS    INTElt   SE.      [CHAP.  VL 

lead  to  this:  that  the  man  was  neglecting  his  business,  devoting  him- 
self to  the  other  business,  and  employing  his  time  and  attention  and 
mind  in  it,  and  diverting  himself  from  the  business  in  which  he  was 
eno-a^ed."  These  views,  which  were  concurred  in  by  the  other  mem- 
bers of  the  court,  are  directly  in  point  in  the  present  case,  which, 
in  principle,  cannot  be  distinguished  from  the  case  then  under 
consideration. 

We  are  clearly  of  opinion  that  the  alleged  new  stipulation  that  each 
co-partner  should  furnish  to  the  firm,  or  to  the  members  thereof,  infor- 
mation as  to  bargains  in  real  estate,  and  give  it  or  them  the  option  to 
engage  in  the  acquisition  thereof  before  acting  upon  such  information 
for  his  own  benefit,  neither  enlarged  the  scope  of  the  partnership  so  as 
to  make  it  include  the  purchases  and  sales  of  real  estate,  nor  precluded 
an}-  member  of  the  firm  from  making  purchases  on  his  own  account  or 
jointly  with  others  ;  and  that  the  act  of  the  appellant  in  purchasing 
property  with  Stearns  was  not  such  a  violation  of  his  duty  and  obliga- 
tion to  the  firm  of  Kilbourn  &  Latta,  or  to  the  members  thereof,  as  to 
entitle  the  appellees  to  share  in  the  profits  which  he  realized  therefrom. 

In  respect  to  the  second  ground,  on  which  the  court  below  rested  its 
judgment,  that  the  appellant  could  not  take  advantage  of  the  skill, 
knowledge,  and  information  as  to  the  real-estate  market  acquired  in 
the  course  of  his  connection  with  the  partnership  of  Kilbourn  &  Latta, 
so  as  to  gain  an}'  profit  individually  therefrom,  but  was  bound  to  share 
with  his  co-partners  all  the  beneficial  results  which  could  be  derived 
from  his  knowledge  or  information  on  that  subject,  we  need  not  do 
more  than  to  say  that  this  proposition  is  wholly  unsupported  either 
by  the  authorities  or  by  any  legal  principle  applicable  to  partnership 
law. 

It  is  well  settled  that  a  partner  may  traffic  outside  of  the  scope  of 
the  firm's  business  for  his  own  benefit  and  advantage,  and  without  going 
into  the  authorities  it  is  sufficient  to  cite  the  thoroughly  considered 
case  of  Aas  v.  Benham,  [1891]  2  Ch.  244,  255,  in  which  it  was  sought 
to  make  one  partner  accountable  for  profits  realized  from  another 
business,  on  the  ground  that  he  availed  himself  of  information  obtained 
by  him  in  the  course  of  his  partnership  business,  or  b}'  reason  of  his 
connection  with  the  firm,  to  secure  individual  advantage  in  the  new 
enterprise.  It  was  there  laid  down  by  Lord  Justice  Lindley  that  if  a 
member  of  a  partnership  firm  avails  himself  of  information  obtained  by 
him  in  the  course  of  the  transaction  of  the  partnership  business,  or  by 
reasou  of  his  connection  with  the  firm,  for  any  purpose  within  the 
scope  of  the  partnership  business,  or  for  any  purpose  which  would 
compete  with  the  partnership  business,  he  is  liable  to  account  to  the 
firm  for  any  benefit  he  may  have  obtained  from  the  use  of  such  infor- 
mation ;  but  if  he  uses  the  information  for  purposes  which  are  wholly 
without  the  scope  of  the  partnership  business,  and  not  competing  with 
it,  the  firm  is  not  entitled  to  an  account  of  such  benefits. 

It  was  further  laid  down  in  that  case,  in  explanation  of  what  was 


§  2.]  TO    DEVOTE    THEMSELVES    TO    THE    BUSINESS.  515 

said  by  Lord  Justice  Cotton  in  Dean  v.  Macdowell,  »bi  supra,  that  -  It 
is  nut  the  source  of  the  information,  but  the  use  to  which  it  is  applied. 
-which  is  important  in  such  matters.  To  hold  that  a  partner  can  never 
derive  any  personal  benefits  from  information  which  he  obtains  as  a 
partner  would  be  manifestly  absurd."  And  it  was  said  bv  Lord  Justice 
Bowen  that  the  character  of  information  acquired  from  the  partnership 
transaction,  or  from  connection  with  the  linn,  which  the  partner  might 
not  use  for  his  private  advantage,  is  such  information  as  belongs  to 
the  partnership  in  the  sense  of  property  which  is  valuable  to  the  part- 
nership, and  in  which  it  has  a  vested  right. 

Tested  by  these  principles,  it  cannot  be  properly  said  that  Latta 
used  any  information  which  was  partnership  property,  so  as  to  render 
him  chargeable  with  the  profits  made  therefrom.  His  knowledge  of  the 
real-estate  market,  or  in  respect  to  profitable  investments  therein,  was 
not  used  in  competition  with  the  business  of  the  firm,  nor  in  any  man- 
ner so  as  to  come  within  the  scope  of  the  firm's  business. 

The  points  already  considered  being  sufficient  to  dispose  of  the  case, 
we  do  not  deem  it  necessary  to  go  into  the  other  question  discussed  as 
to  whether  a  parol  partnership  in  respect  to  purchasing  and  selling  real 
estate,  or  an  agreement  between  co-partners  to  give  each  other  the 
option  of  engaging  in  such  purchases,  would  come  within  the  opera- 
tion of  the  statute  of  frauds. 

^Ye  are  clearly  of  opinion,  upon  the  whole  case,  that  the  decree 
should  be  reversed,  and  the  cause  remanded  to  the  court  below  with 
directions  to  dismiss  the  bill  at  the  costs  of  the  appellees,  and  it  is 
accordingly  so  ordered. 


§  2.    To  Devote  Themselves  to  the  Business. 

BELCHER  et  al.    v.  WHITTEMORE   et  al. 
134  Mass.  330.   1883. 

W.  Allen,  J.  This  is  a  bill  in  equity  in  which  the  plaintiffs  claim 
an  interest  in  letters  patent  issued  to  the  defendant  John  R.  Whitte- 
more  for  inventions  made  by  him.  When  the  inventions  were  made 
and  the  letters  patent  issued,  the  parties  were  co-partners  in  the  busi- 
ness of  manufacturing  and  selling  agricultural  implements,  and  in  the 
foundry  business,  and  the  patents  were  for  improvements  in  agricul- 
tural implements.  The  inventing  and  patenting  of  new  and  improved 
machines  was  no  part  of  the  business  of  manufacturing  and  selling 
them,  and  did  not  come  within  the  scope  of  the  partnership  business. 
The  facts  do  not  disclose  any  contribution  of  means  by  the  co-part- 
nership which  would  give  it  an  interest  in  the  result.  The  time,  labor. 
and  materials  belonging  to  the  co-partnership,  which  were  used  bj 
"VYhitteinore   in   perfecting   his   inventions,   with   the    knowledge    and 


516     Duties  and  liabilities  of  partners  inter  se.     [chap.  vi. 

without  the  objection  of  the  other  partners,  were  clearly  not  regarded 
by  any  one  as  contributions  to  work  by  the  firm  which  would  give  it 
a  property  in  the  inventions  which  might  be  made.  It  is  true  that  by 
the  articles  of  co-partnership  each  partner  was  to  give  his  time  to  the 
business  of  the  firm,  and  not  to  engage  in  any  other  speculation  or 
business  in  his  own  name  and  on  his  own  account  to  the  detriment 
of  the  firm ;  that  Whitternore  used  his  time,  and  labor  and  materials 
belonging  to  the  firm,  in  making  improvements  in  machines  manufac- 
tured and  sold  by  it ;  and  that  for  some  of  the  improvements  so  made 
he  procured  at  his  own  expense,  and  in  his  own  name,  and  for  his  own 
benefit,  letters  patent.  But  this  did  not  make  such  inventions  the  prop- 
erty of  the  co-partnership.  If  he  violated  his  agreement,  or  used  the 
property  of  the  firm  without  the  consent  of  his  co-partners,  he  was 
liable  therefor.  But  it  does  not  appear  that  he  did  anything  to  the 
detriment  of  the  firm,  or  without  the  consent  of  his  co-partners.  The 
improvements  he  devised,  whether  patented  or  not,  were  a  benefit  to 
the  firm  by  increasing  its  business,  and  no  objection  was  made  by  any 
member  of  it,  either  to  the  making  use  b}T  Whitternore  of  the  facilities 
furnished  bj?  the  business  for  making  experiments  and  improvements, 
or  to  the  procuring  of  letters  patent  by  him  for  inventions  so  made. 
We  know  of  no  principle  or  decision  which,  upon  the  facts  in  the  case, 
could  give  to  the  co-partnership  any  right  in  the  patents. 

Bill  dismissed. 

C.  L.  Long,  for  the  plaintiffs. 

G.  Wells,  for  the  defendants. 


MATTINGLY  v.  STONE'S  ADM'R. 

35  S.  W.   (Ivy.)   921.    1896. 

Pryor,  C.  J.  By  the  terms  of  a  written  contract  between  M.  P.  Mat- 
tingly  and  W.  S.  Stone,  the  latter  became  interested  as  a  partner  of  the 
former  in  two  distilleries,  —  one,  the  "  Old  W.  S.  Stone  Distillery  ;" 
the  other,  the  "Daviess  County  Club  Distillery."  The  consideration 
for  the  interest  was  the  transfer  by  Stone  to  Mattinghy  of  the  exclusive 
use  of  a  valuable  brand  belonging  to  Stone,  and  which  Mattingly  de- 
sired to  appropriate  to  his  own  use,  or  that  of  the  two  distilleries. 
The  interest  of  Stone  was  the  one-eighth  part  of  the  stock  ($30,000) 
in  the  Daviess  County  Club  Distillery,  and  an  interest  of  one-eighth 
in  the  Old  W.  S.  Stone  Distiller}",  its  property  and  appurtenances  ;  the 
hitter  to  share  in  the  profits  after  a  certain  period,  in  proportion  to  his 
interests.  Each  party  was  to  render  services,  Stone  running  the  one 
distillery,  and  Mattingly  the  other.  The  general  control  of  the  busi- 
ness was  given  to  Mattingby.  The  partners  failed  to  prosecute  their 
business  amicably,  and  certain  suits  followed,  in  one  of  which  Stone 
brought  an  action  to  recover  for   his  services,  and  failed,  and  Mat- 


§  2.]  TO   DEVOTE    THEMSELVES   TO   THE   BUSINESS.  517 

tingly  an  action  to  rescind  the  contract,  with  like  results,  neither  being 
entitled  to  relief.  The  present  action  was  instituted  by  Stone  for  a 
settlement  of  the  partnership  to  which  various  defences  were  made. 
The  appellant  insists  that  there  was  no  partnership,  but  a  mere  sale, 
and  that  Stone  was  entitled  to  rents  for  his  interest,  and  not  profits. 
Counsel  for  the  appellant  in  the  cases  heretofore  decided  construed  the 
contract  as  constituting  a  partnership,  but  whether  so  or  not,  it  is  plain 
the  parties  were  partners  by  its  terms,  and  a  settlement  should  be  had. 

The  question  of  more  difficulty  than  any  other  arises  from  the  con- 
tention of  the  appellant  that  the  partnership  was  dissolved  in  March, 
1885,  when  the  former  suits  were  instituted,  and  the  parties  ceased  to 
have  any  business  intercourse  ;  but  assuming,  as  we  shall  do,  that  the 
partnership  continued,  and  that  Mattingly  had  no  power  to  end  the 
partnership  at  his  will  or  pleasure,  it  then  becomes  proper  to  ascertain 
the  balance  due,  if  anything,  by  Mattingly  to  Stone.  Mattingly  claims 
that  he  has  sustained  damages  by  reason  of  Stone's  permitting  other 
parties  to  use  this  brand  after  September,  1883,  when  its  exclusive  use 
was  with  Mattingly.  There  is  nothing  in  this  defence,  and  the  fact 
that  the  Owensboro  Distilling  Company  was  to  use  the  brand  until 
December,  1887,  was  known  to  Mattingly  at  the  time  of  his  contract, 
and  the  entire  defence  as  to  its  use  b}-  others  is  an  afterthought,  with 
no  merit  in  it. 

The  appellant  claims  compensation  for  the  management  and  conduct 
of  the  business,  which  was  disallowed  bjT  the  chancellor,  and  this,  we 
think,  is  an  error.  The  parties,  by  the  terms  of  the  written  contract, 
were  each  to  perform  services,  and  to  render  that  assistance  necessary 
to  the  proper  conduct  of  the  business  ;  and  when  Stone  stood  by  and 
saw  the  entire  management  of  the  distilleries  conducted  b}-  Mattingly, 
with  his  (Mattingly's)  own  capital,  his  labor  and  skill,  it  is  neither  just 
nor  equitable  that  he  should  be  allowed  nothing,  and  Stone  awarded  his 
share  of  the  profits,  as  if  he  had  been  an  active  partner.  The  report 
of  the  commissioner  to  whom  the  case  was  referred  is  plain,  concise, 
and  brief,  in  which  he  states  that  t;  Mattingly  furnished  all  the  capital 
to  carry  on  the  business  for  repairs,  paid  taxes  and  insurance,  and,  in 
fact,  all  the  capital  used  in  carrying  on  the  business  at  both  houses, 
and  the  proof  shows  that  to  furnish  the  capital  and  manage  the  busi- 
ness was  worth  $5,000  per  annum.  There  was  paid  to  Stone  by  Mat- 
tingly 81,992,  or  he  obtained  that  much  from  the  business.  Stone 
rendered  no  service  in  operating,  taking  care  of,  or  managing  the  dis- 
tilleries." With  this  report,  the  chancellor  charged  Stone  with  the 
§1,992  he  had  received,  and  credited  him  by  his  one-eighth  of  the 
profits,  which  was  $5,482.84,  leavingdue  Stone  by  Mattingly  $3,490.57, 
for  which  judgment  was  rendered.  While  we  think  $5,000  per  annum 
for  the  six  years  is  too  much  to  allow  Mattingly  for  the  management 
of  the  business,  furnishing  capital,  etc.,  he  ought  to  be  allowed  not 
less  than  $3,000  per  annum,  which  for  the  six  years  would  be  $1S,000, 
one-eighth  of  which  should  be  charged  to  Stone.     The  one-eighth  would 


513        DUTIES   AND   LIABILITIES    OF   PARTNERS    INTER    SE.      [CHAT.  VI. 

be  $2,250,  and  add  to  this  the  $1,992  Stone  had  received,  makes  $4,242. 
This  sum  taken  from  Stone's  part  of  the  net  profits  as  reported, 
$5,482.84,  leaves  Mattingly  indebted  to  Stone  in  the  sum  of  $1,240.84, 
for  which  judgment  should  be  rendered  after  first  charging  the  net 
profits  with  the  court's  cost  of  the  litigation  below. 
Reversed  and  remanded,  that  this  may  be  done. 


§  3.    To  Contribution. 

WARRING  v.    ARTHUR  et  al. 

98  Ky.  34 :  32  S.  W.  221.     1896. 

Eastin,  J.  This  action  was  brought  by  appellant  in  the  Bell 
Circuit  Court,  alleging  the  existence  of  a  partnership  between  him- 
self and  appellees,  and  seeking  to  enforce  an  alleged  right  of  con- 
tribution from  appellees  of  certain  sums  which  he  claimed  to  have 
paid  in  excess  of  his  proportion  of  the  partnership  indebtedness.  It 
is  charged  in  the  petition  that  this  partnership  relation  arose  by 
operation  of  law  out  of  the  fact  that  appellant  and  some  of  the  appel- 
lees had,  in  the  year  1890,  signed  articles  of  incorporation,  and  under- 
taken to  organize  a  corporation  in  the  town  of  Middlesborough,  under 
chapter  56  of  the  General  Statutes  of  Kentucky,  and  that  all  of  the 
appellees  had  subscribed  for  and  become  the  owners  of  stock  in  this 
proposed  corporation,  which  bad  never,  in  fact  or  in  law,  become  a 
corporation,  by  reason  of  the  failure  of  the  projectors  thereof  to 
comply  substantially  with  the  requirements  of  the  statute  regulating 
the  formation  of  corporations  in  Kentucky. 

It  is  alleged,  however,  that  this  abortive  corporation  commenced 
business  and  incurred  liabilities  which  it  was  unable  to  pay,  and 
that,  the  defects  in  its  organization  being  discovered,  and  the  fact 
that  it  had  no  legal  corporate  existence  becoming  known  to  some  of 
its  creditors,  suits  were  brought  against  appellant  to  charge  him 
individually,  as  one  of  the  incorporators  and  stockholders  thereof, 
and  that  he  had  thus  been  compelled  to  pay  on  its  account  the  sum 
of  $1,327.68.  It  is  further  alleged  that  by  reason  of  the  failure  to 
become  legally  incorporated  the  relation  between  appellant  and  his 
associates  became  that  of  partners,  and  that  they  all  became  equally 
liable  to  creditors  for  said  indebtedness,  and  that  he  was  entitled  to 
contribution  from  the  others  for  their  respective  proportions  of  the 
amount  paid  by  him  individually.  It  is  stated,  however,  that  of  his 
several  associates  only  two,  to  wit,  the  appellees  John  M.  Brooks 
and  R.  H.  Fox,  were,  at  the  time  of  the  filing  of  the  petition,  either 
solvent,  or  within  the  jurisdiction  of  the  court,  and  appellant  there- 
fore asked  that  they  be  required  to  contribute  equally  with  him  the 


§  3]  TO   CONTRIBUTION.  519 

amount  he  had  so  paid  out,  and  asked  judgment  against  each  of  them 
for  au  amount  equal  to  one-third  thereof,  or  $442.5 

To  this  petition  a  general  demurrer  was  sustained  by  the  court, 
and,  leave  being  given  to  amend,  appellant,  at  a  subsequent  term  uf 
the  court,  filed  an  amended  petition,  in  which  he  alleged  for  the  first 
time  that  the  company  or  partnership  referred  to  in  his  original  peti- 
tion was  insolvent  at  the  time  of  the  tiling  thereof;  that  it  never  had 
any  invested  capital;  that  its  business  had  been  done  on  credit;  that 
it  had  long  since  ceased  to  do  business:  that  all  the  property  it  ever 
had  had  been  sold  by  order  of  court;  that  from  the  time  of  the 
attempted  organization  it  had  been  insolvent,  and  had  Ion-  .sine- 
been  dissolved.  To  the  petition  as  thus  amended,  appellee.-,  Fox  ami 
Brooks  again  demurred,  but,  their  demurrers  being  overruled,  they 
excepted,  and  were  given  time  to  answer.  Separate  answ<  rs  were 
afterwards  filed  by  these  appellees,  to  which  appellant  tiled  replies, 
and  also  general  and  special  demurrers,  which  were  not  then  passed 
upon*  by  the  court,  and  separate  rejoinders  were  then  filed  by  Fox 
and  Brooks,  thus  making  up  the  issues  on  the  pleadings.  Appellant 
testified  in  his  own  behalf.  Brooks  gave  his  deposition;  and  a 
written  statement  by  Fox,  which  was  agreed  to  be  read  as  his  depo- 
sition, was  filed,  and  these,  with  the  exhibits  attached  to  them, 
constituted  the  evidence  heard  upon  the  trial.  Qpon  the  hearing 
the  court  below  overruled  the  demurrers  tiled  by  appellant  to  the 
answers  of  Brooks  and  Fox,  respectively,  but  on  the  merits  ad- 
judged that  appellant  take  nothing  by  his  petition,  and  dismissed 
the  same  with  costs,  to  all  of  which  appellant  excepted,  and  prayed 
an  appeal. 

The  record  before  us  presents  some  questions  of  more  than  ordinary 
interest,  especially  that  arising  on  the  merits  of  the  case  as  prepared, 
and  pertaining  to  the  mutual  obligations  to  each  other  of  parties 
standing  in  the  relation  of  the  parties  to  this  action;  but,  interesting 
as  a  consideration  of  that  question  might  be,  it  is  unnecessary,  in 
our  view  of  the  case,  and  the  decision  of  the  court  will  be  based 
entirely  upon  the  sufficiency  of  appellant's  petition  to  sustain  the 
action  against  appellees.  It  is  to  be  observed  that  the  liability  sought 
to  be  fixed  by  appellant  on  appellees  is  that  of  partners.  The  very 
foundation  of  the  cause  of  action  rests  upon  the  assumption  that  the 
failure  of  these  parties  to  pursue  substantially  the  course  pointed  out 
in  and  required  by  the  statute  for  the  organization  of  a  corporation 
made  them  partners  in  this  business,  and,  a  partnership  being  thus 
established  by  operation  of  law,  this  action  for  contribution  as 
between  partners  was  brought  to  charge  each  with  his  proportion  of 
what  one  member  thereof  had  been  compelled  to  pay  on  account  of 
partnership  liabilities.  Yet  it  is  nowhere  alleged  in  the  petition  as 
amended,  nor  is  it  anywhere  claimed  in  the  case,  that  there  had  ever 
been  any  settlement  of  the  partnership  accounts,  or  any  accounting 
between  the  parties,  whereby  a  balance  had  been  struck,  or  whereby 


520       DUTIES   AND   LIABILITIES    OF   PAKTNEKS    INTER   SE.       [CHAP.  VL 

the  appellees  were  found  to  be  indebted  to  the  firm  in  any  sum  on 
final  settlement. 

That  this  is,  as  a  general  rule,  necessary  in  order  to  enable  one 
partner  to  maintain  an  action  of  this  kind  against  his  co-partners,  is 
too  well  settled  to  require  discussion.  Where  the  transaction  out  of 
which  the  liability  arises  is  independent  of  or  outside  of  the  partner- 
ship business,  or  where  the  partnership  covers  a  single  venture,  or 
but  one  transaction,  so  that  no  accounting  is  necessary,  the  rule  is 
perhaps  different;  but  in  a  business  such  as  the  one  under  considera- 
tion here,  covering  a  variety  of  transactions,  we  know  of  no  excep- 
tion to  the  rule  as  above  stated.  This  rule  is  recognized  by  this 
court  in  the  cases  of  Lawrence  v.  Clark,  9  Dana,  259;  Shearer  v. 
Francis,  9  Ky.  L.  R.  556;  and  Stone  y.  Mattingly,  14  Ky.  L.  R.  114, 
—  and  may  be  said  to  be  fundamental  as  to  the  right  of  one  partner 
to  sue  his  co-partner. 

It  is  true  that  this  action  was  brought  in  equity,  and  that  the 
petition  contains  a  prayer  for  all  general  relief;  but  it  does  not  ask 
for  a  settlement  of  the  partnership  accounts,  or  for  a  winding  up 
of  its  affairs.  It  does  state  that  the  partnership  is  insolvent,  but  it 
nowhere  says  anything  as  to  the  nature  or  amount  of  its  indebted- 
ness; and  while  it  alleges  that  appellant  has  made  these  payments 
for  it,  it  takes  no  account  of  the  fact  that  other  members  of  the  firm 
may  also  have  paid  out  money  for  it,  as  Brooks  in  his  testimony 
swears  that  he  has  clone.  And  this  shows  the  importance  of  the  rule 
referred  to,  for  how  could  this  one  partner  have  known  the  state  of 
the  account  between  this  firm  and  each  of  the  other  partners  when 
there  had  been  no  settlement  of  the  partnership  accounts,  and  how 
unreasonable  it  would  be  to  allow  him  to  maintain  an  action  against 
each  of  the  others  for  their  full  proportion  of  what  he  might  have 
paid  without  reference  to  the  question  as  to  what  they  may  have 
paid  ?  In  other  words,  how  can  there  be  any  fair  or  just  contribu- 
tion, or  any  claim  to  contribution,  as  between  partners,  until  after  a 
final  settlement  and  ascertainment  of  the  exact  state  of  the  account 
of  each  partner,  and  a  full  settlement  of  the  partnership  affairs? 
Admitting  all  that  is  alleged  in  this  petition  to  be  true,  it  might  well 
be  that  appellant  was  entitled  to  recover  nothing  from  his  partners 
by  way  of  contribution  on  account  of  what  he  had  paid,  for,  as  there 
is  no  pretence  that  the  partnership  accounts  have  ever  been  settled  it 
might  appear  on  such  settlement  that  appellant  was  still  indebted  to 
the  partnership  in  a  large  sum,  and  that  his  partners  had  actually  paid 
for  it  much  more  than  he  had  done.  Indeed,  this  very  claim  is  here 
made  by  his  partners.  It  is  charged  by  them  that,  though  he  sub- 
scribed for  stock  to  the  amount  of  $2,500,  yet  he  has  paid  for  no  part 
of  it;  and  while  he  claims  that  it  was  agreed  that  he  should  not  pay 
for  it,  still  Brooks  and  Fox  deny  that  there  was  any  such  agreement. 
We  only  refer  to  this,  however,  as  illustrating  the  imperative  neces- 
sity  for  and  the  eminent  propriety  of  the  rule  which   forbids   that 


§  3.]  TO   CONTRIBUTION.  521 

such  an  action  be  maintained  in  the  absence  of  a  full  settlement  of 
the  partnership  affairs  which  will  show  the  exact  state  of  the  account 
between  it  and  every  other  person,  and  especially  the  other  members 
of  the  firm,  so  that  the  claims  and  demands  of  the  partners,  as  be- 
tween themselves,  may  be  known. 

Another  point  to  which  attention  may  be  called  is  the  fact  that  this 
petition  fails  to  state  that  this  alleged  partnership  was  an  equal  part- 
nership, or  that  the  appellees,  Fox  and  Brooks,  who  are  each  asked 
to  contribute  equally  with  appellant,  are  equally  interested  with  him 
in  the  partnership.  It  appears  from  the  record  that  appellant  sub- 
scribed for  82,500  of  the  stock,  while  each  of  the  appellees  named 
subscribed  for  81,000  of  the  same.  The  fact  that  they  were  stock- 
holders is  the  fact  relied  on  for  holding  them  liable  as  partners.  Mr. 
Lindley.  in  his  work  on  Partnership,  lays  it  down  as  a  general  rule 
"  that  partners  must  contribute  ratably  to  their  shares  towards  the 
losses  and  debts  of  their  firm  "  (2  Partn.  38G) ;  and  this,  we  think, 
is  the  accepted  doctrine  on  the  subject.  Certainly  any  other  rule 
would  be  very  inequitable  in  this  case,  and  while  we  do  not  care  to 
decide  that  this  must  be  the  basis  of  recovery  in  every  such  case,  yet 
we  would  call  attention  to  the  absence  from  the  petition  in  this  case 
of  any  allegation  as  to  the  respective  interests  of  the  partners  among 
whom  this  loss  is  sought  to  be  apportioned. 

In  conclusion,  it  is  clear  from  the  views  above  expressed  that  no 
error  was  committed  by  the  court  below  to  the  prejudice  of  appellant, 
and  the  judgment  dismissing  his  petition  with  costs  is  therefore 
affirmed. 


CLAYTON   v.    DAVETT   et  al. 

38  At.  (N.  J.  Eq.)  30S.     1897. 

Stevexs,  V.  C.  The  complainant  filed  his  bill  against  the  defend- 
ants for  an  injunction  and  account.  The  evidence  shows  that  on 
April  20,  1892,  the  defendants,  Julius  Davett  and  Alex.  II.  K<>ss. 
formed  a  co-partnership  to  carry  on  the  business  of  brokers,  which 
was  to  commence  on  the  1st  day  of  May,  L892,  and  to  continue  for 
five  years,  unless  sooner  dissolved  in  the  manner  pointed  out  in  the 
partnership  articles.  The  partnership  lasted  for  a  year  only.  By 
the  terms  of  the  partnership  articles,  each  of  the  partners  was  to  con- 
tribute the  sum  of  810,000  in  cash.  Ross  paid  in  his  share  of  the 
capital  at  once.  Davett,  not  having  any  money  of  his  own  to  pay 
in,  applied  to  the  complainant  to  lend  him  810,000,  which  he  did. 
On  December  22,  1892,  Davett  signed  a  written  acknowledgment  that 
he  had  received  the  money.  In  this  paper  he  agreed  to  put  it  in  the 
business,  and  not  to  draw  it  out  except  for  the  purpose  of  repaying 
it  to  complainant.     A  few  days  after,  Davett  executed  to  complainant 


522        DUTIES    AND   LIABILITIES    OF   PARTNERS   INTER   SE.      [CHAP.  VI 

a  deed  of  assignment  of  his  undivided  one-half  interest  in  the  assets 
of  the  firm.  This  assignment,  in  terms,  purported  to  be  an  uncon- 
ditional assignment.  The  consideration  therefor  was  stated  to  be 
$10,000.  But  very  shortly  afterwards,  if  not  contemporaneously,  he 
and  complainant  executed  another  sealed  instrument,  in  which,  after 
reciting  the  assignment,  it  was  agreed  that,  in  consideration  of  one 
dollar,  so  long  as  complainant  retained  his  interest  or  share  in  said 
business,  Davett  should  collect  and  take  all  dividends,  income, 
interest,  and  profits  earned  by  said  share  formerly  held  by  him 
(Davett),  but  now  owned  and  held  by  Clayton,  and  should  apply  and 
appropriate  the  same  to  his  own  use,  except  sufficient  to  pay  said 
Clayton  interest  on  $10,-000.  Davett  was  also  empowered  to  collect 
and  take  whatever  accumulated  income  and  profits  might  be  coming 
to  the  share  at  that  date.  The  three  papers  just  referred  to  were 
nearly  contemporaneous  in  date,  and  were  evidently  parts  of  one 
arrangement.  Taken  together,  they  show  that  the  real  transaction 
was  a  loan  of  money  by  Clayton  to  Davett,  secured  by  an  assignment 
of  Davett' s  interest  in  the  assets  of  the  partnership.  The  arrange- 
ment was  therefore  in  the  nature  of  a  mortgage  security,  and  was  so 
regarded,  not  only  by  complainant  and  Davett,  but  —  and  this  is  a 
matter  of  considerable  importance  —  by  Ross  as  well.  He  was  asked 
on  the  witness  stand:  "  Did  you  keep  any  account  for  [with?]  Clayton 
at  all?"  And  his  answer  was:  "Only  to  put  in  the  entries  when 
money  was  paid  on  Davett' s  share  of  the  assets,  on  which  Mr.  Clayton 
held  a  mortgage."  At  the  time  of  the  dissolution  of  the  partnership, 
on  May  1,  1893,  Ross  was  authorized  by  Davett,  who  was  then  insol- 
vent, to  get  in  the  assets  and  pay  the  debts.  According  to  an  account 
appended  to  Ross'  answer,  he  realized  $20,976.  He  paid  out  for 
debts  $7,259.37.  Of  the  balance,  he  paid  to  Davett  $756.87;  he 
paid  to  Clayton,  on  account  of  Davett's  share,  $7,553.81;  and  he 
retained  the  balance  ($5,405.95)  for  himself.  In  addition  to  the  sum 
which  the  complainant,  Clayton,  received  from  Ross,  it  appears  that 
he  also  received  $1,675  from  Davett.  He  has  thus  been  paid  at  least 
$9,228.81  out  of  a  total  of  $10,000  owing  to  him. 

The  question  to  be  decided  arises  out  of  a  counterclaim  made  by 
Ross  against  Clayton  under  the  following  circumstances :  Ross  paid 
the  above  money  to  Clayton  before  one  Ward  had  recovered  a  judg- 
ment of  $3,850  against  the  firm  of  Davett  &  Ross,  and  before  one 
Illingworth  had  recovered  a  judgment  of  $1,941.18  against  Ross  per- 
sonally. Ross  now  claims  that,  the  assets  of  the  firm  having  been 
insufficient  to  satisfy  these  judgments  and  yield  him  an  amount  of 
money  equal  to  that  which  he  paid  on  Davett's  account,  Clayton  is 
liable  to  repay  to  him  such  sum  as  would,  added  to  the  amount  of 
assets  remaining  in  his  hands,  make  his  share  of  the  assets  equal  to 
Davett's.  The  first  of  the  judgments  was  recovered  against  the  two 
partners,  Davett  and  Ross,  in  an  action  of  tort  for  trover  and  conver- 
sion of  certain  shares  of  stock.     The  second  was  recovered  against 


S  3.]  TO   CONTBIBUTION.  523 

Ross  alone  in  an  action  of  deceit  grounded  on  certain  false  and 
fraudulent  representations  made  with  reaped  to  the  solvency  of  one 
Graham,  whose  notes  the  plaintiff,  Dlingworth,  was  thereby  induced 
to  take.  His  claim  for  contribution  in  respect  of  the  Dlingworth 
judgment  is  entirely  untenable,  whatever  view  may  be  taken  of  the 
relations  between  Clayton  and  Ross.  The  judgment  being  rendered 
in  an  action  of  deceit,  it  was  thereby  conclusively  established  that 
Ross  had  been  guilty  of  moral  fraud  in  making  the  misrepresentation 
which  was  the  foundation  of  that  action.  In  Cowley  v.  Smyth,  -10 
N.  J.  Law,  383,  Mr.  Justice  Depue  expressly  says:  "  In  such  an 
action  [deceit]  a  false  representation  without  a  fraudulent  design  is 
insufficient.  There  must  be  moral  fraud  in  the  misrepresentation, 
to  support  the  action."  Counsel  for  Ross  cites  many  cases  in  equity 
(where  the  rule  is  different),  and  in  other  jurisdictions,  to  show  that 
a  judgment  in  an  action  of  deceit  does  not  necessarily  establish  moral 
guilt;  but,  in  view  of  the  decision  just  quoted,  they  are  without  weight 
here.  It  was  admitted  that  the  rule  of  law  is  that,  where  there  i.-> 
moral  guilt,  contribution  is  not  enforced,  as  between  wrongdoers. 
But  this  is  a  case  in  which  the  sole  wrongdoer  seeks  to  have  con- 
tribution against  a  person  perfectly  innocent.  The  case  is  much 
stronger  than  that  of  Thomas  v.  Atherton,  10  Ch.  Div.  L85,  cited  on 
the  argument,  in  which  contribution  was  refused. 

If  the  claim  to  contribution  in  respect  of  the  Qlingworth  judgment 
be  thrown  out,  there  remains  the  Ward  judgment,  in  respect  of  which, 
if  his  account  be  correct,  Ross  would  be  entitled  to  recover  a  part  of 
the  money  paid,  as  against  his  co-partner,  Davett.     This  he  does  not 
ask.     He  seeks  to  recover  it  against  the  creditor  of  that  co-partner, 
on  the  ground  that  that  creditor,  by  reason  of  the  assignment  which 
betook,  stands  in  his  debtor's  shoes.     In  Ins  answer  in  the  nature 
of  a  cross  bill  he  alleges  an  express  agreement  on  Clayton's  part  to 
refund  in  case  of  deficiency,  but  this  he  fails  to  prove;  and  so  he 
based  his  right  of  recovery  upon  Clayton's  legal  or  equitable  obliga- 
tion to  contribute  by  reason  of  the  assignment.     His  position  is  that 
the  assignment  made  Clayton  his  partner,  or  quasi  partner,  and  that 
as  such  he  became  subject  to  a  partner's  liability.     If  the  legal  effect 
of  the  assignment  were  as  contended  for,  this  position  would  be  sound. 
But  I  do  not  think  that,  either  in  fact  or  in  law,  Clayton  ever  became 
Ross'  partner.     Certainly  he  did  not  carry  on  the  business  as  part- 
ner, and,  as  I  have  already  said,  the  legal  effect  of  the  assignment, 
read  in  connection  with  the  two  other  papers  already  referred  to.  was 
merely  to  put  Clayton  in  the  position  of  an  equitable  mortgagee. 
After  their  execution  the  firm  of   Davett  &  Ross  was  to  continue  in 
the  business  in  that  name,  as  before,  and  did  so  continue,  and  Davett 
was  to  take  the  profits  and  apply  them  to  his  own  use.     He  was  only 
to  reserve  thereout  sufficient   to  pay   Clayton   interest   on    $10,000. 
But,  if  Clayton  was   to  be   paid  interest,  it  could   only  be  because  the 
relationship  of  debtor  and  creditor  still  continued  in  respect   to  that 


524       DUTIES   AND   LIABILITIES    OF   PARTNERS    INTER   SE.      [CHAP.  VI. 

sum.  An  absolute,  unconditional  sale  of  the  interest  could  not  have 
been  contemplated,  and,  as  I  have  said  before,  Ross  himself  so  con- 
strued the  writings.  He  says  he  "only  put  in  the  entries  in  the 
account  he  kept  when  money  was  paid  on  Davett's  share  of  the  assets 
on  which  Mr.  Clayton  held  a  mortgage." 

Now  if  Clayton  was  merely  Davett's  creditor,  secured  in  the  man- 
ner I  have  mentioned,  on  what  principle  can  he  be  bound  to  make 
contribution  to  Ross?  Davett,  the  partner,  is  bound  to  make  such 
contribution,  but  why  is  Clayton?  The  situation  is  this:  Clayton, 
to  the  knowledge  of  Ross,  has  a  lien,  not  upon  the  assets  of  the  part- 
nership, but  upon  Davett's  share  of  those  assets  after  the  partnership 
debts  are  paid.  Ross  is  intrusted  with  the  winding  up  of  the  part- 
nership affairs.  In  the  ultimate  disposition  of  Davett's  share,  he 
acts  as  Davett's  agent.  He  knows  the  facts  concerning  the  partner- 
ship transactions.  Among  other  things,  he  knows  that  Ward  has  a 
claim  against  the  firm.  He  must  be  presumed  to  know  the  facts  con- 
cerning that  claim.  If  it  is  good,  its  payment  will  diminish  the 
amount  to  be  ultimately  distributed  among  the  partners.  Now,  with 
knowledge  of  the  existence  of  this  claim,  Ross,  assuming  it  to  be 
bad,  pays  to  Clayton  a  larger  sum  on  Davett's  account  than  he  other- 
wise would  have  paid.  He  does  not  think  it  necessary  to  retain  in 
his  own  hands  money  sufficient  to  satisfy  it,  if  it  shall  be  adjudged 
good.  He  voluntarily  pays  to  Clayton  more,  as  the  result  shows, 
than  he  was  under  any  obligation  to  pay.  It  is  a  well-settled  rule 
that  money  voluntarily  paid  under  a  mistake  of  law  cannot  be  re- 
covered back.  This  is  so  held  in  cases  where  the  mistake  has  refer- 
ence to  the  amount  which  the  creditor  may  properly  demand  from  the 
debtor.  Skyring  v.  Greenwood,  4  Barn.  &  C.  282;  Bramston  v. 
Robins,  4  Bing.  11;  Higgs  v.  Scott,  7  C.  B.  63.  It  must  be  so  held 
with  still  greater  reason  where  the  mistake  of  law  has  reference,  not 
to  the  debt  itself,  or  to  the  amount  demandable  thereon,  but  to  a  col- 
lateral question  arising  between  the  debtor,  or  the  debtor's  agent, 
and  some  third  person,  of  which  the  creditor  may  know  nothing.  I 
think  I  am  safe  in  asserting  that  no  case  has  gone  the  length  of 
deciding  that  if  an  agent,  through  a  mistake  of  law,  supposing  that 
he  has  in  his  hands  more  money  of  his  principal  than  he  realty  has, 
pays  his  principal's  debt,  he  can  recover  back  from  the  creditor  as 
much  of  the  money  paid  as  turns  out  ultimately  to  be  his  own. 
Indeed,  I  do  not  understand  counsel  to  have  seriously  contended  for 
such  a  proposition.  He  rather  rested  his  claim  for  contribution  on 
the  ground  that  Clayton,  by  reason  of  the  assignment  made  to  him 
by  Davett,  stood  in  Davett's  shoes,  and  was  affected  by  Davett's  lia- 
bility to  reimburse  him  for  partnership  debts  paid  after  distribution 
of  the  partnership  assets  among  the  partners.  But  this  contention 
fails,  of  course,  as  soon  as  it  appears  that  the  effect  of  the  papers 
signed  was  merely  to  give  to  Claj'ton  a  lien  upon  Davett's  share  of 
the  assets,  and  not  to  make  him  a  partner  with  Ross. 


§  4.]  ACTIONS    AT    LAW    BETWEEN    PAETNERS.  525 

I  think  Ross  is  not  entitled  to  contribution  from  Clayton  in 
respect  of  the  money  paid  either  on  the  Ward  or  on  the  Illingwortk 
judgments. 


§  4.    Actions  at  Law  between  Partners. 

RYDER   v.    WILCOX. 

103  Mass.  24.     1869. 

Contract.  Writ  dated  July  26,  18G7.  The  declaration  was  as 
follows:  "And  the  plaintiff  says  the  defendant  made  a  contract  in 
writing  with  him,  a  copy  whereof  is  hereto  appended  and  made  part 
of  this  declaration,  whereby  the  defendant  agreed  to  enter  into  and 
carry  on  with  the  plaintiff  the  business  of  manufacturing  and  selling 
oil  and  candles  in  the  manner  and  upon  the  terms  set  forth  in  said 
written  contract;  and  the  plaintiff  avers  that  he  has  in  all  respects 
well  and  truly  performed  the  promises  and  agreements  on  his  part  to 
be  kept  and  performed  under  said  contract;  but  that  the  defendant, 
without  sufficient  cause  or  justification,  has  failed  and  refused  to  per- 
form his  promises  and  agreements  in  said  contract  contained,  and 
has  violated  said  contract,  in  this:  that  he  has  arbitrarily,  and  against 
the  will  of  the  plaintiff,  and  without  sufficient  cause  or  justification, 
entirely  and  completely  excluded  the  plaintiff  from  all  participation 
in  the  conduct  and  management  of  said  business  and  in  the  profits 
thereof,  and  has  arbitrarily  assumed  the  exclusive  management,  con- 
trol, and  profit  thereof  to  himself,  without  regard  to  the  rights  of  the 
plaintiff;  and  that  the  said  defendant  has  failed  and  refused  to  make 
an  annual  settlement  of  account  with  the  plaintiff,  and  annual  pay- 
ment, in  accordance  with  the  terms  of  said  contract;  and  that  though 
the  defendant  has  continued  said  business  to  the  present  time  upon 
the  premises,  and  with  the  tools  and  appliances  of  the  plaintiff,  and 
has  made  large  profits  therefrom,  yet  he  has  refused  to  acknowledge 
and  recognize  that  the  plaintiff  has  any  rights  under  the  contract." 

The  contract  declared  on,  which  was  signed  by  the  parties  ami 
dated  October  2,  1865,  was  as  follows:  "  The  said  AVilcox  does  hereby 
agree  to  enter  into,  establish,  and  carry  on  the  business  of  manufac- 
turing lubricating  and  other  oils  and  paraffine  candles,  under  the 
name,  style,  and  firm  of  '  The  New  Bedford  and  Ohio  Oil  and  Candle 
Company,'  and  to  furnish  the  capital  necessary  for  carrying  on  said 
business  to  the  amount  of  $50,000.  The  business  is  to  be  carried 
on  at  New  Bedford,  and  also  in  the  State  of  Ohio,  and  is  to  be  con- 
tinued for  the  term  of  three  years  from  the  seventeenth  day  of  April 
last  past;  and  the  said  Ryder  is  to  be  employed  as  the  general  agent, 
superintendent,  and  manager  of  said  business.  And  the  said  Ryder 
does   hereby  agree  to  take  charge   of   said    business  as    the    agent* 


526       DUTIES   AND    LIABILITIES    OF    PARTNERS   INTER    SE.      [CHAT.  VI 

manager,  and  superintendent  of  the  same,  and  to  devote  all  his  time, 
attention,  skill,  and  knowledge  to  said  business,  and  to  exert  his  best 
endeavors  to  secure  the  success  and  prosperity  of  said  business  during 
the  said  term  of  three  years  from  the  seventeenth  day  of  April  last  past. 

"  And  it  is  further  agreed  by  and  between  the  said  parties,  that  the 
said  Ryder  shall  receive  in  payment  for  his  said  services  the  sum  of 
$1,000  per  year  during  the  said  term,  and  one-half  of  the  net  profits 
of  the  said  business.  Annual  settlements  are  to  be  made,  and  all 
sums  due  to  said  Ryder  on  said  settlements  are  to  be  paid;  or,  if 
not  paid,  the  amount  is  to  be  credited  to  him,  and  interest  is  to  be 
allowed  him  on  the  same.  And  the  said  Wilcox  is  not  to  reduce  the 
capital  of  said  company  below  the  sum  of  $50,000  during  the  term 
of  his  contract. 

"And  the  said  Ryder  does  further  agree  to  hire  and  let  to  said 
company  his  oil  works,  buildings,  fixtures,  tools,  and  apparatus  for 
manufacturing  oil  and  paraffine  candles  at  New  Bedford,  at  and  for 
the  rent  of  $1,600  per  year  during  the  term  of  this  contract.  The 
buildings  are  to  be  kept  in  repair  by  the  said  Ryder,  but  the  tools, 
fixtures,  machinery,  and  apparatus  are  to  be  kept  in  repair  by  the 
company,  and  are  to  be  returned  to  said  Ryder  in  equal  value  at  the 
end  of  this  contract.  The  said  company  are  also  to  have  the  use 
and  benefits  of  all  trade  marks,  names,  and  patents  now  used  by  said 
Ryder,  free  of  any  charge,  during  the  time  of  this  contract,  and  the 
same  are  to  be  re-delivered  to  said  Ryder  at  the  expiration  of  this 
contract,  free  from  any  claim  or  charge. 

"And  the  said  Wilcox  does  further  agree  that  the  said  company 
shall  have  the  use  of  his  coal  lands,  oil  works,  mining  apparatus,  etc., 
in  the  State  of  Ohio,  and  the  right  to  receive  coal  as  much  as  shall  be 
desired  for  the  use  of  the  company;  for  which,  and  the  use  of  his 
said  works  and  apparatus,  he  is  to  be  allowed  and  paid  by  said  com- 
pany the  sum  of  fifteen  cents  per  ton.  All  necessary  repairs  on  said 
works  and  apparatus  are  to  be  made  by  the  company. 

"All  the  operations  of  the  late  limited  partnership  of  '  Henry 
Ryder  '  since  the  seventeenth  day  of  April  last  are  to  be  considered 
as  done  and  performed  under  this  agreement  so  far  as  the  business 
of  the  company  is  concerned,  and  this  agreement  relates  back  to  the 
seventeenth  clay  of  April  last  past. 

"  The  said  Wilcox  is  to  be  allowed  interest  on  the  capital  stock 
invested  in  said  company,  at  the  rate  of  bank  interest  in  Massa- 
chusetts." 

The  defendant  demurred  because  the  declaration  set  forth  no  cause 
of  action;  and  the  case  was  thereupon  reserved  by  Foster,  J.,  for  the 
determination  of  the  full  court. 

T.  D.  Eliot  and  T.  M.  Stetson,  for  the  defendant. 

E.  L.  Barney,  for  the  plaintiff. 

Colt,  J.  ...  It  remains  to  consider  whether  the  plaiutiff's  case 
comes  within  any  of  those  rules  which  permit  one  partner  to  maintain 


§  4.]  ACTIONS   AT   LAW    BETWEEN    PARTNERS.  527 

an  action  at  law  against  another,  for  a  violation  of  the  partner- 
ship agreement.  It  is  alleged,  in  Bubstance,  that  the  defendant  has 
excluded  the  plaintiff  from  the  management  and  profits  of  the  part- 
nership business;  has  refused  to  make  annual  settlements,  and  pay- 
ments thereon;  and.  although  he  has  continued  the  business  upon  the 
premises  and  with  the  tools  of  the  plaintiff,  and  made  large  profits, 
has  refused  to  recognize  the  plaintiff's  rights  under  the  contract. 
The  action  is  brought  before  the  expiration  of  the  time  limited  for 
the  duration  of  the  partnership,  and  without  any  formal  dissolution 
of  it.  It  is  not  for  the  recovery  of  an  ascertained  general  or  special 
balance  belonging  to  the  plaintiff.  There  can  be  no  recovery  at  law 
of  the  profits  of  the  business,  so  long  as  it  is  possible,  upon  a  final 
settlement  and  account  between  the  partners,  that  the  plaintiff  might 
be  liable  to  refund.  It  is  not  sought  to  charge  the  defendanl  as  upon 
an  agreement  preliminary  to  the  commencement  of  business,  made  for 
the  purpose  of  launching  the  partnership,  like  promises  to  furnish 
capital;  or  upon  separate  securities  given  by  one  partner  to  another 
on  partnership  account;  or  where  there  has  been  a  voluntary  separa- 
tion of  funds  from  the  partnership  stock,  and  one  partner  is  alone 
interested  in  the  contract  relating  to  it. 

It  is  said  that  an  action  at  law  for  damages  for  the  breach  of  an 
express  agreement,  entered  into  by  one  partner  in  favor  of  another, 
will  only  lie  where  the  action  can  be  properly  tried  without  going  into 
the  partnership  accounts,  and  the  damages  sought  will  belong  exclu- 
sively to  the  plaintiff,  and  where  the  plaintiff  will  not  be  liable  in 
any  contingency,  affecting  the  future  joint  business,  to  contribute  to 
his  own  payment.     Lindley  Partn.  731,  740. 

But,  without  stopping  to  inquire  whether  this  action  can  be  main- 
tained without  violating  these  rules,  it  is  sufficient  to  say  that,  what- 
ever the  nature  of  the  agreement,  it  must  be  one  in  which  the  defend- 
ant binds  himself  personally  to  the  plaintiff.  We  cannot  find,  in  the 
instrument  declared  on,  that  the  defendant  did  bind  himself  personally 
to  make  good  to  the  plaintiff  any  certain  sum  as  his  share,  if  the 
partnership  assets  should  prove  deficient.  The  stipulations  in  this 
regard  are  to  be  construed  not  as  personal  covenants  between  the 
parties  as  individuals,  but  rather  as  provisions  defining  and  regulat- 
ing the  mode  in  which  the  business  of  the  company  should  be  con- 
ducted and  the  profits  divided.  The  agreements,  on  the  other  hand. 
for  contribution  to  the  partnership  funds  and  property  which  each  is 
to  make,  are  made  binding  by  name  on  each,  and  would  no  doubt  be 
classed  with  those  express  agreements  which  may  be  the  foundation 
of  an  action.  Venning  v.  Leckie,  13  East,  7;  Brown  v.  Tapscott, 
6  M.  &  W.  110. 

The  principles  we  are  considering  are  illustrated  in  the  case  of 
Paine  /•.  Thacher,  25  "Wend.  450,  where  it  was  held  that,  if  one 
partner  promises  another  partner  to  pay  him  a  compensation  for  per- 
sonal attention  to  the  business  of  the  concern,  this  promise  may  be 


528       DUTIES   AND    LIABILITIES    OF   PARTNERS   INTER   SE.      [CHAP.  VI. 

enforced  at  law,  notwithstanding  the  existence  of  the  partnership  and 
written  articles  providing  for  such  payment.  Nelson,  C.  J.,  says,  in 
this  case,  that  the  item  for  services  had  been  adjusted,  and  there  was 
an  express  promise  to  pay  it,  and  the  compensation  was  to  be  con- 
tributed "  as  a  part  of  the  capital,  to  be  furnished  by  the  defendant 
in  lieu  of  personal  attention." 

It  is  plain  that  there  can  be  no  recovery  at  law  for  work  and  labor 
for  the  firm  or  for  contributions  to  its  funds,  in  the  absence  of  an 
express  agreement  of  the  defendant;  and  the  plaintiff  does  not  aid 
his  case  by  alleging  a  willingness  to  perform,  and  a  prevention  by 
the  defendant. 

The  rights  of  the  parties  are  regulated  by  the  general  principlea 
of  the  law  of  partnership,  when  not  changed  by  special  agreement. 
They  are  joint  owners  and  possessors  of  the  capital  stock,  funds, 
and  effects  of  the  company.  Each  has  equal  right  to  the  posses- 
sion, and  equal  right  in  the  conduct  and  management  of  the  joint 
business,  and  is  clothed  with  like  authority. 

In  the  opinion  of  the  court,  upon  the  case  stated  in  this  declara- 
tion, no  action  at  law  can  be  maintained.  If  the  declaration  could 
be  taken  as  alleging  an  entire  repudiation  by  the  defendant  of  the 
contract  and  of  the  relation  of  partnership,  with  a  claim  of  damages 
for  such  a  breach  of  the  contract,  instead  of  compensation  for  ser- 
vices in  conducting  the  business,  and  for  a  share  of  its  profits,  such 
an  action  might  be  maintainable.  We  do  not  so  understand  its  alle- 
gations. A  failure  and  refusal  by  the  defendant  to  perform  his 
promise  and  agreement  is  indeed  charged,  together  with  an  exclusion 
of  the  plaintiff,  and  a  refusal  to  acknowledge  that  he  has  any  rights 
under  the  contract.  But  it  also  alleges  a  refusal  to  make  the  annual 
settlement  of  accounts  and  annual  payments,  according  to  the  con- 
tract, and  sets  forth  a  continuance  of  the  business  upon  the  premises 
and  with  the  tools  and  appliances  of  the  plaintiff,  with  large  profits 
therefrom,  from  a  participation  in  which  he  has  been  excluded.  The 
remedy  in  such  cases  is  in  equity,  where  the  power  to  investigate 
accounts,  to  compel  specific  performance,  and  to  restrain  breaches  of 
duty  for  the  future,  affords  the  only  relief  which  can  be  had. 

In  Capen  v.  Barrows,  1  Gray,  376,  it  was  held  that  an  action  at  law 
to  recover  damages,  brought  by  one  partner  against  his  co-partner, 
for  neglect  of  partnership  business,  could  not  be  maintained  while 
the  affairs  of  the  firm  remain  unsettled,  although  it  was  expressly 
agreed  that  each  partner  should  devote  hi3  whole  time  to  the  part- 
nership business.  The  principle  of  that  case  is  applicable  here. 
Fanning  v.  Chadwick,  3  Pick.  420;  Williams  v.  Henshaw,  11  Pick. 
79  ;  Met.  Con.  133 ;  Holmes  v.  Higgins,  1  B.  &  C.  74. 

Demurrer  sustained* 


§  4.]  ACTIONS   AT    LAW    BETWEEN    PAETNEES.  529 

PATRICK   et  al.    v.    WESTON. 
22  Colo.  45:  43  Pac.  416.     1895. 

Action*  by  Weston  against  his  co-partners  for  an  accounting  and 
for  a  recovery  of  his  share  of  firm  moneys,  which  had  been  ap- 
plied by  them  to  the  debts  of  the  preceding  linn.  A  trial  to  the 
court  resulted  in  findiugs  and  judgment  as  follows:  "(1)  Thai  the 
plaintiff  is  not  entitled  to  dividend  No.  31.  (2)  That  the  plaintiff 
is  liable  for  his  proportionate  share  of  the  pay  of  the  manager, 
W.  F.  Patrick,  as  manager  of  the  mines.  (3)  That  the  plaintiff 
is  not  liable  for  any  of  the  Minnie  judgment,  or  any  of  the  money 
paid  thereon.  (4)  That  the  plaintiff  is  not  liable  for  any  portion 
of  the  judgment  rendered  in  the  suit  of  the  Colorado  Smelting 
Company  against  W.  F.  Patrick  et  al.  (5)  That  the  plaintiff  is 
not  liable  for  any  portion  of  the  expense  paid  in  the  McLean  suit. 
(6)  That  the  plaintiff  is  not  liable  for  any  portion  of  the  amount 
paid  as  attorney  fees  by  the  management.  (7)  That  tlu>  plaintiff  is 
entitled  to  recover  from  the  defendants  jf\  of  the  amounts  withheld 
and  paid  out  for  these  several  purposes,  together  with  interesl  there- 
on, at  the  rate  of  8  per  cent  per  annum,  from  the  date  that  dividends 
should  have  been  declared  therefor.  (8)  That  the  amount  so  with- 
held from  the  plaintiff  by  the  defendants  is  $4,054.90,  and  that  the 
interest  thereon  amounts  to  the  further  sum  of  &G50.95.  Therefore, 
it  is  ordered,  adjudged,  and  decreed  by  the  court  that  the  plaintiff 
have  and  recover  of  and  from  the  defendants  the  sum  of  §5,305. G5, 
together  with  his  costs  in  this  behalf  expended,  to  be  taxed,  and  that 
he  have  execution  therefor."  To  reverse  this  judgment,  this  writ  of 
error  is  sued  out. 

C.  C.  Parsons  and  F.  L.  Baldwin^  for  plaintiffs  in  error. 

A.  S.  Weston  and  John  A.  Ewing,  for  defendant  in  error. 

Hayt,  C.  J.  With  a  few  well-understood  exceptions,  the  law  of 
mining  partnerships  is  quite  similar  to  the  law  governing  ordinary 
trading  partnerships.  Among  these  exceptions  is  one  which  allows 
one  member  of  a  mining  partnership  to  convey  his  interest  in  the 
mine  and  business  to  a  stranger  without  dissolving  the  co-partner- 
ship.  This  exception  has  grown  out  of  the  necessities  of  the  case, 
which  require  the  continuous  working  of  mines  in  order  that  the  same 
may  be  made  profitable.  So,  likewise,  it  has  been  held  that  neither 
assignment,  nor  death,  nor  bankruptcy  of  the  owner  of  an  interest  in 
a  mining  concern  should  operate  to  dissolve  a  co-partnership  existing 
for  the  purpose  of  working  the  mine.  Another  difference  between  a 
mining  partnership  and  an  ordinary  trading  partnership  is  th:it  the 
former  is  not  founded  upon  the  delectus  persona,  while  the  latter  is. 
Hence,  one  mining  partner  has  not  the  right  to  bind  his  associates  to 
the  same  extent  as  a  member  of  a  trading  partnership.     Charles  v. 


530        DUTIES   AND    LIABILITIES    OF   PARTNERS    INTER   SE.      [CHAP.  VI. 

Eshleman,  5  Colo.  114;  Manville  v.  Parks,  7  Colo.  128;  Higgins  u. 
Armstrong,  9  Colo.  47;  Meagher  v.  Reed,  14  Colo.  335. 

The  contention  of  plaintiffs  in  error  is  that,  when  defendant  in 
error,  Weston,  became  an  owner  of  and  interested  in  the  real  estate, 
and  a  member  of  the  mining  partnership,  he  became  such  owner  cum 
onere,  subject  to  the  settlement  of  the  partnership  accounts,  and  sub- 
ject to  the  payment  of  the  partnership  debts,  of  which  the  Minnie 
judgment,  the  expenses  of  the  suit  of  the  Colorado  Smelting  Company 
against  Patrick  et  al.,  and  the  costs  of  the  McLean  suit,  with  attor- 
ney's fees  and  expenses,  were  a  part.  This  contention  of  counsel  is 
not  supported  by  any  adjudicated  case,  and,  upon  principle,  we  think 
that  an  incoming  partner  ought  not  to  be  liable  for  debts  contracted 
prior  to  his  acquiring  an  interest  in  the  property,  and  prior  to  his 
becoming  a  member  of  the  mining  partnership.  Cases  in  which 
the  incoming  partner  has  been  held  liable  may  all  be  resolved  into 
instances  in  which  the  real  estate  was  either  purchased  by  the  part- 
nership with  partnership  funds,  or  was  brought  into  the  firm  as  a 
part  of  the  capital  stock  by  the  individual  members  of  the  co-partner- 
ship. In  the  case  at  bar,  as  we  have  seen,  there  is  no  evidence  of  a 
partnership  in  the  ownership  of  the  mines;  the  evidence  being  to  the 
effect  that  an  ordinary  mining  partnership  was  formed  for  the  pur- 
pose of  prospecting  and  working  the  properties.  We  are  not  con- 
cerned in  this  case,  nor  do  we  decide,  as  to  what  the  rights  of 
partnership  creditors  may  be,  in  equity,  to  enforce  their  claims 
against  the  property  of  the  firm  or  individual  members  thereof.  We 
are  only  concerned  with  the  law  governing  partners  inter  sese;  and, 
certainly,  in  the  absence  of  an  agreement  to  the  contrary,  the  general 
rule  is  that  an  incoming  partner  does  not  become  liable  for  debts 
contracted  prior  to  the  time  he  became  a  member  of  the  partnership. 
This  principle  is  elementary,  and  there  is  nothing  in  this  case  to 
bring  the  plaintiff,  Weston,  within  any  exception  to  the  rule ;  and  we 
therefore  hold  that  he  was  not  liable  for  any  part  of  the  Minnie  judg- 
ment, or  any  part  of  the  claim  of  the  Colorado  Smelting  Company, 
or  of  McLean,  or  of  the  expenses  of  any  of  these  suits. 

It  is  contended,  however,  that  the  court  below  erred  in  rendering  a 
joint  judgment  against  the  defendants.  It  sufficiently  appears,  from 
the  evidence  in  this  case,  that  the  defendants  acted  in  concert  in 
reference  to  these  matters,  and  by  their  joint  action  caused  the  funds 
of  the  company  to  be  used  in  the  payment  of  obligations  for  which 
they  were  jointly  and  severally  liable,  and  for  which  Weston  was  not 
liable.  Under  these  circumstances,  by  a  familiar  principle,  they 
became  jointly  and  severally  liable  to  him  for  the  amounts  thus 
diverted.  .  .  .  Affirmed. 


§  4.]  ACTIONS   AT   LAW   BETWEEN    PARTNERS.  531 

NEIL,   J.,    in   MORRIS   v.    WOOD  et  al. 
33  S.  W.  (Tenu.)  1013.     1896.1 

But  is  a  partner  responsible  for  a  fraudulent  conversion  of  stocks 
belonging  to  the  firm  within  this  ruler-     We  see  no  reason  why  he 
should  not  be.     If  his  wrongful  act  amounts  to  a  fraudulent  conver- 
sion, within  the  technical  meaning  of  that  term,  the  effect  upon  those 
injured  by  his  act  is  the  same  as  if  he  were  not  a  partner,  and  the 
legal  quality  of  the  act  is  the  same,  inasmuch  as  to  hold  the  act  com- 
plained of  a  fraudulent  conversion  necessarily  is  tantamount   to  sav- 
ing that  his  relation  of  partner  did   not,  under  the  circumstances, 
justify  his  act.     But,  under  what  circumstances  is  a  partner  liable 
for  a  conversion, — that  is  to  say,  a  fraudulent  conversion?     *'  It  is 
not,  as  I  understand  it,"  said  the  Master  <>f  the  Rolls  in  Ex  parte 
Harris,  2  Yes.  &   B.  210,   "  necessary  for  the  joint  estate   to  prove 
more   than,  iu   the  words   of    Lord  Eldon,  that  the  overdrawing  was 
made  for  private  purposes,  against  the  prohibition,  either  express  or 
implied,  in  the  partnership  agreement,  without  the  knowledge,  con- 
sent, privity,  or  subsequent  approbation  of  the  other  partners.     That 
is  all  that  is  necessary  to  be  proved;  but,  if  that  is  shown,  it  is  prima 
facie  a  fraudulent  appropriation,  within  the  rule."     Pol.  Dig.  Partn. 
145,    146.     And,    after  quoting  the  above,   the  learned  author  pro- 
ceeds: "  It  appears,  therefore,  that  the  term  '  fraud'  is  used,  for  the 
purposes  of  this  rule,  in  the  wide  sense  formerly  given  to  it  by  courts 
of  equity.     Lord  Eldon  expressly  defines  it  to  mean  any  taking  of 
partnership  funds  which  is  not  by  contract,  or  loan,  or  with  the  ex- 
press or  implied   authority  of   the   other  partners."     Id.  146.     The 
language  of  Lord  Eldon  upon  the  subject  is:  "  I  take  it,  now,  to  be 
necessary,    attending  to  the  result  of  Lord  Thurlow's  decisions   in 
Be  Lodge  and  the  other  cases,  that,  in  order  to  establish  a  right  of 
proof  for  the  joint  estate,  it  must  be  made  out  that  the  money  was 
taken  improperly  and  fraudulently,  —  in  this  sense   improperly   and 
fraudulently,  that  it  was  taken  against  the  contract  between  the  par- 
ties,  express   or   implied,    or,    as   against    an    individual    partner,    to 
increase  his  private  estate.     I  have  oftener  than  once  expressed  my 
confirmation  of  that  opinion   that   those   circumstances  would,    in   a 
legal  sense,  constitute  fraud.     Cases  of  this  kind,  however,  must  be 
decided  upon  their  particular  circumstances;  and  the  conclusion  of 
law  as  to  fraud  must  depend  upon  the  nature  of  these  circumstances." 
In  T.  Parsons  on  Partnership,  §  394,  it  is  said:  "The  fraud  may 
be  constructive  only,  and   any  act  would   be  so  which  violated   the 
articles  or  agreement  of  the  partners,  or  abstracted  or  appropriated 

property  or  funds  bytheactof  one  partner  only,  without  the  authority, 

1  Court  of  Chancery  Appeals.     Orally  affirmed  by  the  Supreme  Court,  March  9. 

2  The  rule  of  Wright  v.  Bank,  110  N.  Y.  237:  s.  c.  liurdick's  Cases  on  Torts,  2d 
ed.  433. 


532       DUTIES   AND    LIABILITIES    OF    PARTNERS   INTEK    SB.      [CHAP.  VL 

consent,  or  knowledge  of  the  others."  This  is  said  in  the  chapter  on 
"  Bankruptcy  and  Insolvency,"  and  in  laying  down  the  rules  govern- 
ing the  question  when  the  joint  estate  can  call  upon  the  estate  of 
individual  partners  to  restore  property  improperly  withdrawn  from 
such  joint  estate,  and  vice  versa  ;  but,  as  we  have  already  intimated, 
the  underlying  principle  must  be  the  same  upon  settlements  between 
the  partners  themselves,  where  one  of  the  firm  has  fraudulently  with- 
drawn firm  assets. 

With  these  principles  in  view,  we  shall  now  examine  the  facts 
appertaining  to  the  particular  controversy  in  hand.  They  are  as 
follows:  On  the  8th  of  September,  1886,  the  complainant  and  the 
defendants  W.  J.  Wood  and  W.  B.  Wood  entered  into  a  written  con- 
tract, as  follows:  The  contract  first  sets  out  that  the  complainant  had 
sold  to  said  W.  J.  and  W.  B.  Wood  a  two-thirds  undivided  interest 
in  the  tract  in  the  Twelfth  Civil  District  of  Wayne  County,  known  as 
the  "Bently  Tract,"  and  then  proceeds:  "  And  it  is  agreed  that  said 
Morris  will  buy  other  lands  adjoining  or  in  the  neighborhood  of  this 
tract,  at  one  dollar  per  acre  or  less,  and  the  said  W.  B.  and  W.  J. 
Wood  are  to  be  joint  owners  of  two-thirds  interest,  and  to  pay  two- 
thmls  of  the  cost  of  said  lands  he  may  purchase,  100  acres  of  which 
he  now  puts  in  at  one  dollar  per  acre."  A  large  number  of  tracts 
were  purchased  under  this  agreement,  and  the  titles  were  sometimes 
taken  to  complainant  and  sometimes  to  W.  B.  and  W.  J.  Wood,  and 
on  one  or  two  occasions  to  one  Sample,  an  agent  of  the  parties.  The 
dealings  of  the  three  parties  concerned  under  this  agreement  showed 
that  they  construed  the  contract  as  constituting  them  partners  in  said 
land  transactions,  in  which  each  was  to  contribute  one-third  of  the 
purchase  price  of  the  lands,  and  each  was  to  share  equally  in  the 
profits.  In  confirmation  of  this,  in  addition  to  the  language  of 
the  agreement  as  to  "  the  costs  of  said  lands,"  we  refer  to  a  settle- 
ment made  between  the  parties  February  9,  1887,  which  will  be  more 
particularly  referred  to  hereafter  in  another  connection.  This  settle- 
ment showed  a  sale  of  certain  lands  to  the  Florence  Land,  Mining,  & 
Manufacturing  Company,  and  an  equal  division  of  the  proceeds. 
These  tracts  so  sold,  and  proceeds  divided,  were  13  in  number,  and 
embraced  nearly  10,000  acres.  The  said  settlement  contains,  also, 
the  following  additional  clause,  with  reference  to  unsold  lands:  "  The 
following  lands  were  bought  and  are  still  owned  by  us  jointly,  though 
the  deeds  are  taken  in  our  individual  names,  to  the  different  tracts, 
namely."  Then  follows  a  list  of  tracts,  and  included  in  this  list 
appears  the  following:  "  Thomas  Newcomb,  .  .  .  3,200  acres."  This 
is  the  tract  the  proceeds  of  which  are  now  in  controversy. 

At  the  time  the  settlement  was  made,  all  parties  were  under  the 
impression  that  the  title  to  the  Newcomb  tract  was  in  W.  B.  and  W. 
J.  Wood,  by  deed  from  Newcomb;  but  it  had  been,  in  fact,  placed 
in  one  H.  W.  Sample,  agent  of  the  parties,  under  the  following  cir- 
cumstances :  Complainant  had  negotiated  a  purchase  of  the  land  with 


§  4.]  ACTIONS    AT   LAW    BETWEEN    PABTNERS. 

a  son  of  Newcomb,  the  son  living  in  Wayne  County,  and  the  father 
in  Corinth,  Miss.     Complainant  got  crippled,  and  was  unable  to  go 

to  Corinth  to  close  the  trade,  and  Sample  was  sent  for  this  pur] 
and  did  so,  but  took  the  title  in  his  own  name.  It  does  n«»t  appear, 
however,  that  Sample  ever  claimed  the  land,  or  did  otherwise  than 
recognize  the  rights  of  the  true  owners  therein.  And  subsequently, 
as  we  have  stated,  the  real  owners,  complainant  and  W.  1'..  and  W. 
J.  Wood,  recognized  the  land  as  belonging  to  the  partnership.  This 
was  in  February,  1887. 

On  June  27,  1887,  W.  B.  and  W.  J.  Wood,  under  the  impression 
that  Sample  had  taken  the  title  in  their  name,  made  a  deed  of  the 
land  to  the  Florence  Land,  Mining,  &  Manufacturing  Company,  in 
consideration  of  225  shares  of  stock  of  said  company,  which  were 
then  passed  to  their  credit  on  the  stock  book  of  the  company.  On 
July  26,  1887,  without  informing  complainant  of  the  above-mentioned 
conveyance,  W.  J.  Wood  wrote  to  complainant  as  follows:  "  1  am 
going  to  Florence  the  day  after  to-morrow,  but  will  hardly  have  time 
to  get  notice  to  you  so  that  you  can  meet  me  there.  I  cannot  accept 
any  of  your  propositions  to  swap  my  interest  in  the  Parker  lands  for 
yours  in  the  Newcomb  lands,  but  I  think  I  can  sell  both  the  Newcomb 
and  Parker  lands  at  prices  that  will  pay  you  and  I  to  let  them  go. 
Will  you  please  send  power  of  attorney  to  Judge  W.  15.  Wood, 
Florence,  Ala.,  authorizing  him  to  sell  and  make  a  conveyance  of 
your  interest  as  well  as  his  and  mine?  Of  course,  you  will  under- 
stand that  whatever  we  get  out  of  the  Newcomb  or  the  Parker  lands 
is  to  be  divided  equally,  share  and  share  alike,  between  you,  .Judge 
Wood,  and  myself.  Send  power  of  attorney  authorizing  us  to  sell 
these  two  tracts  of  land  at  once,  as  I  think  it  very  probable  that  we 
will  find  a  purchaser  in  a  short  time.  I  think  I  can  get  75  cents  or 
81  an  acre  for  the  Newcomb  land,  and  81  or  81.25  for  the  Parker 
land."  This  was  within  a  month  after  W.  B.  and  W.  J.  Wood  had, 
in  fact,  made  a  com^ance  of  the  Newcomb  land  to  the  company. 

Again,  on  August  6,  1887,  W.  J.  Wood  wrote  the  following  letter 
to  complainant:  "If  you  have  not  done  so,  please  send  at  once,  to 
Judge  W.  B.  Wood,  at  Florence,  the  power  of  attorney  authorizing 
him  to  sell  3-our  interest  in  the  Newcomb  and  Parker  tracts  of  land. 
I  think  that  we  can  make  this  sale  at  once,  and  I  think,  also,  that 
it  is  important  for  us  to  do  so  while  we  can.  You  will,  of  course, 
share  in  the  profits  of  the  sale,  which  will  be  equally  divided  between 
you,  Judge  Wood,  and  myself.  Don't  fail  to  send  this  power  of 
attorney  to  Judge  Wood  at  once,  so  that  the  sale  can  be  made,  and 
do  not  delay  as  you  sometimes  do  about  things,  so  that  we  will  lose 
an  opportunity  of  selling  the  land.  I  expect  to  get  more  out  of  it 
for  }Tou  than  you  offered  to  take  recently  for  your  interest  in  those 
tracts."  Again,  on  August  18,  1887,W.  .1.  Wood  wrote  the  follow- 
in  g  letter  to  complainant:  "Your  postal  was  received.  I  met  Judge 
Wood  recently,  and  think  he  can  sell    the  lands  for  us  at   a  fair  price. 


534        DUTIES   AND    LIABILITIES   OF   PAKTNEKS   INTER   SE.      [CHAP.  VI. 

If  he  cannot  sell  them,  we  will  buy  part  of  the  Newcomb  land,  which 
we  can  use,  at  a  slight  advance  to  you  on  the  original  purchase.  If 
he  can  sell  them,  however,  and  I  hope  he  will  do  so,  we  will,  of 
course,  divide  whatever  the  proceeds  may  be.  Will  you  please,  now, 
in  order  that  Judge  "Wood  may  show  the  party  with  whom  we  have 
been  negotiating  that  we  can  make  this  sale,  sign  inclosed  power  of 
attorney,  acknowledge  it  before  a  notary  public,  in  the  same  form 
that  deeds  require  to  be  acknowledged,  and  forward  at  once  to  Judge 
"Wood  at  Florence?  Please  attend  to  this  promptly."  On  the  19th 
of  September,  1887,  having  discovered  that  the  title  to  the  Newcomb 
land  had  been  taken  to  H.  W.  Sample,  as  before  stated,  the  said  W. 
B.  and  W.  J.  Wood  caused  him  to  make  a  deed  to  the  said  Florence 
Land,  Mining,  &  Manufacturing  Company. 

Meantime  the  stock,  which  had  been  received  for  said  land  on  the 
27th  of  June,  1887,  when  they  themselves  made  the  deed  to  the  com- 
pany, was  standing  in  their  names  on  the  stock  book  of  the  company. 
They  did  not  communicate  to  the  complainant  the  fact  that  they  had 
made  the  sale  June  27th,  nor  the  confirmatory  deed  of  Sample,  nor 
that  the  stock  was  in  their  name,  but  left  him  to  find  out  these  mat- 
ters, from  the  secretary  of  the  company,  in  March,  1890,  and  when 
the  bill  was  filed  denied  in  their  answer  that  the  complainant  was 
entitled  to  any  part  of  said  stock  received  for  the  Newcomb  land. 
The  appropriation  so  made  of  the  stock  was  not  with  the  consent, 
approval,  or  subsequent  ratification  of  the  complainant.  We  think 
the  above-recited  facts  make  out  a  case  of  fraudulent  conversion  of 
the  stock,  within  the  sense  and  meaning  of  the  authorities  upon  that 
subject  above  quoted.  We  therefore  sustain  complainant's  excep- 
tion upon  this  subject,  above  quoted,  to  the  extent  of  holding  that 
defendants  should  account  for  complainant's  interest  in  the  stock  at 
25^  cents  on  the  dollar.   .  .   . 


SULLIVAN,  J.,  in  HASKINS  v.    CURRAN  et  al. 

43  Pac.  (Idaho)  559.     1895. 

The  stipulation  in  the  agreement  sued  on  is  as  follows:  "  It  is 
hereby  agreed  that  the  undersigned,  W.  S.  Haskins,  shall  furnish 
such  money  as  long  as  it  may  be  mutually  agreeable  to  him  and  the 
said  Martin  Curran  and  Susie  Hussey  to  carry  out  the  terms  of  said 
bond;  and,  in  consideration  of  such  advancements,  said  Martin  Curran 
and  Susie  Hussey  hereby  admit  him  as  an  equal  one-third  partner  in 
and  under  said  bond,  and  in  and  to  all  property  rights,  titles,  and 
interests  therein  and  thereunder,  and  obligate  themselves  to  repay 
him  on  or  before  June  3,  1892,  two- thirds  of  all  money  so  advanced 
by  him,  with  interest  at  the  rate  of  ten  per  cent  thereon  per  annum 
from  date  of  such  advancements,  with  costs  of  collecting  the  same, 


§  4.]  ACTIONS    AT   LAW    BETWEEN    PARTNERS.  535 

if  any,  including  reasonable  attorney's  fees."  This  contract  is  one 
admitting  Haskins  to  participate  equally  in  a  co-partnership  thereto- 
fore existing  between  Martin  Currau  and  Susie  Hussey;  and,  in  con- 
sideration of  being  admitted  a  one-third  partner  therein,  he  agrees  to 
put  up  his  one-third  of  the  money  required,  and  agrees  to  loan,  or,  if 
you  please,  advance,  the  two-thirds  required  to  be  advanced  by  his 
co-partners;  and,  in  consideration  thereof,  his  co-partners  obligate 
themselves  to  repay  their  share  so  advanced  on  or  before  Jum 
1892,  with  interest  thereon,  and  also  to  pay  all  costs  of  collecting  the 
same,  including  a  reasonable  attorney's  fee.  Here  is  an  express 
promise  by  Curran  and  Hussey  to  repay  their  share  of  advances  made 
by  Haskins  on  or  before  June  o,  1892,  including  interest  and  costs 
of  collecting  the  same.  Under  those  circumstances,  the  money  bo 
advanced  becomes  the  debt  of  the  promisors,  recoverable  by  direct 
action  therefor,  without  dissolution  of  partnership  or  adjustment  of 
partnership  accounts.  2  Lindl.  Partn.,  bottom  page  1350,  latter  part 
of  note  2;  T.  Pars.  Partn.  285  et  seq. 

If  the  defendants  had  given  Haskins  their  promissory  note  for  the 
sum  so  advanced,  would  it  be  urged  that  he  could  not  maintain  a  suit 
thereon  when  due?  I  think  not.  Appellants  make  a  contract  in 
writing  to  repay  two-thirds  of  all  advances,  which  they  agreed  to  pay 
at  a  certain  date;  thus  clearly  showing  that  it  was  not  the  intention 
that  such  advances  should  be  considered  as  items  in  the  partnership 
accounts  to  be  adjusted  with  them.  In  Sprout  v.  Crowley.  30  Wis. 
1ST,  the  court,  after  stating  the  general  rule  in  regard  to  one  partner 
maintaining  a  suit  at  law  against  his  co-partner,  says:  "But,  where 
there  is  an  express  agreement  by  one  partner  to  repay  to  the  other 
his  share  of  advances  made  by  the  latter  on  account  of  partnership 
business,  the  amount  of  such  share  becomes  thereby  the  debt  of  the 
partner  who  has  thus  agreed  to  pay  the  same,  which  may  he  recovered 
in  an  action  brought  directly  therefor,  without  any  regard  to  the  part- 
nership relation  existing  between  the  parties  or  the  state  of  their  firm 
accounts,"  —  and  cites  numerous  authorities  in  support  of  that  prop- 
osition. The  doctrine  there  laid  down  is  reaffirmed  in  Gauger  v. 
Pautz,  45  Wis.  449.  The  rule  there  laid  down  is  applicable  to  the 
case  at  bar. 


McAULF.Y   et  al.  v.    COOLF.Y. 

45  Neb.  582:  63  N.  W.  871.     1895. 

Ryan,  C.  On  the  12th  day  of  October,  1888,  J.  II.  Cooley  and  bteo. 
A.  Bentley  entered  into  a  written  agreement  whereby  they  associated 
themselves  as  partners  under  the  firm  name  of  J.  II.  Cooley  &  Co., 
for  the  purpose  of  dealing  in  lumber.  By  the  terms  of  this  agree- 
ment, George  A.  Bentley's  obligations  were  as  follows:  "The  said 


536       DUTIES   AND    LIABILITIES    OF   PARTNERS   INTER   SE.      [CHAP.  VL 

Geo.  A.  Bentley  shall  and  he  is  hereby  firmly  bound  to  give  all  of 
his  time,  and  use  his  best  efforts,  to  promote  the  interest  of  their 
business.  The  said  Geo.  A.  Bentley  is  to  keep  the  books  of  the  firm 
in  a  careful  and  workmanlike  manner,  and  to  render  a  just,  true,  and 
accurate  account  of  all  goods,  wares,  commodities,  merchandise, 
moneys,  and  accounts  at  any  time  required,  and  to  do  all  the  work 
required  to  be  done  in  the  business  as  long  as  one  man  can  do  it, 
after  which  the  expense  of  hiring  a  man  shall  be  done  equally  out  of 
the  business ;  and  Geo.  A.  Bentley  to  be  allowed  to  draw  for  his  per- 
sonal expense  a  sum  not  to  exceed  forty  dollars  ($40)  for  each  month, 
which  amount  shall  be  charged  to  his  personal  account,  and  come  out 
of  his  share  of  the  profits." 

The  plaintiffs  in  error,  by  their  written  undertaking  in  relation  to 
the  above  contract,  bound  themselves  as  follows:  "  Whereas,  on  the 
12th  day  of  October,  1888,  the  above-bounden  George  A.  Bentley 
and  the  said  J.  H.  Cooley  entered  into  a  co-partnership  for  the  pur- 
pose of  carrying  on  the  business  of  lumber  and  coal,  etc.,  in  the  vil- 
lage of  Holstein,  in  the  County  of  Adams,  and  State  of  Nebraska: 
Therefore,  the  condition  of  this  obligation  is  such  that  if  the  above- 
bounden  George  A.  Bentley  shall  do  and  perform  all  the  acts  and 
requirements  of  the  written  contract  entered  into  by  and  between  the 
said  parties  of  the  above  date,  and  shall  carry  out  the  obligations 
therein  required  of  him  strictly  to  its  spirit  and  terms,  then  this  obli- 
gation to  be  void;  otherwise  to  remain  in  full  force  and  effect." 

The  firm  of  J.  H.  Cooley  &  Co.  was  dissolved  about  July  31,  1889. 
On  the  date  last  named  it  is  clear  from  the  evidence  that  the  lumber 
owned  by  the  firm  was  measured,  and  an  invoice  made.  There  was 
a  settlement  made  between  the  individual  members  of  the  firm  at  or 
about  that  time,  and  the  entries  in  the  firm  books  by  Bentley,  being 
assumed  to  be  correct,  were  acted  upon  by  both  parties  as  a  reliable 
basis  for  a  full  settlement  of  the  partnership  matters.  Not  only  was 
a  settlement  made  at  this  time,  but,  pursuant  thereto,  all  the  assets  of 
the  partnership  firm  were  turned  over  and  transferred  to  J.  H.  Cooley. 
Upon  the  basis  assumed,  it  was  agreed  between  the  partners  that 
there  was  due  from  Bentley  to  Cooley  the  sum  of  813.  This  action 
at  law  was  brought  for  the  most  part  to  recover  upon  the  bond  signed 
by  the  plaintiffs  in  error  the  several  amounts  which  Bentley  had  been 
paid  and  had  failed  to  make  a  record  of  in  the  books  of  the  co-part- 
nership in  any  way.  The  allegations  of  the  petition  were  very  gen- 
eral, but  were  based  upon  the  theory  that  for  whatever  sums  Bentley 
had  received  to  his  own  use  and  made  no  entry  of  in  the  books  (which 
it  was  his  duty  accurately  to  keep)  the  plaintiffs  in  error  were  liable. 

While  the  petition  was  perhaps  less  definite  than  it  might  have  been, 
there  was  no  objection  made  on  that  score ;  nor,  indeed,  do  we  under- 
stand that  even  now  such  objection  is  urged.  The  plaintiffs  in  error 
insist,  however,  that  no  suit  at  law  could  be  maintained  between  the 
partners  until  a  settlement  had  been  had  between  them.     There  was 


§  4.]  ACTIONS    AT   LAW    BETWEEN    PARTNERS. 

just  such  a  settlement  and  an  adjustment  of  the  liability  cb  up  a 

a  false,  misleading  basis  furnished  by  the  partner,  for  the  faithful 
performance  of  whose  duties  in  that  very  respect  the  plaintiffs  in 
error  were  liable.  This  action  was  not  to  wind  up  a  partnership,  but 
was  for  the  failure  of  one  partner  to  perform  certain  duties  as  he  had 
contracted  with  another  person  to  do  them.  True,  these  duties  per- 
tained to  partnership  affairs  between  the  contracting  parties;  the 
undertaking  in  this  respect  was  none  the  less  that  of  Bentley  individ- 
ually, and  for  faithful  performance  of  such  individual  undertaking 
plaintiffs  in  error  were  liable.  There  was  sufficient  evidence  to  sus- 
tain a  finding  that  the  failure  of  Bentley  to  account  for  moneys 
received  by  him  had  resulted  in  damage  to  Cooley  to  the  amount 
found  by  the  court.   .   .   . 

The  judgment  of  the  District  Court  is  affirmed. 


MASON    et   al.    v.    SIEGLITZ. 
22  Colo.  320:  44  Pac.  588.     1S06. 

Action  by  Sieglitz  against  Mason  and  others,  for  one-third  of  the 
commissions  received  upon  the  sale  of  the  Brush-Heap  mining  prop- 
erty, plaintiff  claiming  that  under  an  agreement  between  him.  defend- 
ant Mason,  and  one  Moorman,  they  were  to  share  equally  in  the  com- 
missions of  said  sale.     Defendants  appeal  from  a  judgment  for  plaintiff. 

jr.   C.  Ki)tgsley,  for  appellants. 

Stuart  &  Murray,  for  appellee. 

Campbell,  J.  .  .  .  We  proceed  to  consider  such  of  the  errors 
assigned  as  we  think  property  raised. 

1.  It  is  said  that  this  action  cannot  be  maintained,  for  the  reason 
that  the  complaint  shows  that  there  was  a  partnership  between  the 
parties  to  this  agreement,  and  that  one  partner  cannot  sue  another  for 
a  debt  growing  out  of  a  partnership  transaction,  but  that  the  proper 
action  is  one  for  a  dissolution  of  the  partnership  and  for  an  accounting. 
We  do  not  find  that  this  objection  was  properly  taken  by  the  appellants 
at  either  trial,  and  we  might,  for  this  reason,  properly  refuse  to  con- 
sider it  here.  But  the  agreement  in  this  case  related  to  a  single 
transaction.  The  parties  to  it  evidently  did  not  intend  to  form  a  part- 
nership, and  the  profits  of  the  transaction  were  in  no  sense  to  be 
applied  to  their  joint  account,  but  one-third  of  whatever  profil  was 
obtained  went  to  each  one  of  the  parties  separately.  The  intention  of 
the  parties  is  not  necessarily  decisive,  particularly  when  the  language 
of  the  agreement  is  inconsistent  with  such  intention  ;  but  the  intention 
of  the  parties  is  always  von'  material  in  determining  whether  or  not  a 
partnership  inter  sese  exist--,  ami  even  as  to  third  parties.  We  do  not 
consider  that  the  agreement  as  to  the  commissions  for  this  sale  consti- 


538       DUTIES   AND    LIABILITIES    OF   PARTNERS   INTER   SE.       [CHAP.  VI. 

tuted  the  parties  partners.  See  1  Chit.  Cont.  (11th  Am.  eel.)  320,  and 
notes  ;  1  Lindl.  Partn.  18  ;  17  Am.  &  Eng.  Enc.  Law,  857  ;  Wheeler  v. 
Arnold,  30  Mich.  304  ;   Wass  v.  Atwater,  33  Minn.  83. 

But  if  there  was  a  partnership,  there  being  but  one  item  unadjusted, 
the  kind  of  action  brought  by  the  plaintiff  would  lie  at  common  law ; 
and  under  the  Code,  there  being  but  one  form  of  civil  action,  if  the 
facts  set  up  in  the  complaint  entitle  the  plaintiff  to  any  kind  of  relief, 
if  the  evidence  warrants  it,  such  relief  will  be  awarded.  Wann  v. 
Kelly,  5  Fed.  584;  Wheeler  v.  Arnold,  supra/  Meason  v.  Kaine, 
63  Pa.  St.  335  ;  Sikes  v.  Work,  6  Gray,  433  ;  Pettengill  v.  Jones, 
28  Kan.  749 ;  Galbreath  v.  Moore,  2  Watts,  86  ;  Buckner  v.  Ries, 
34  Mo.  357.     There  is  nothing  in  this  contention.  .   .  . 

Judgment  affirmed. 


WILSON   v.   WILSON   et    al. 

26  Or.  251:  38  Pac.  185.     1891. 

Wolverton,  J.  The  questions  suggested  by  this  record  are  two. 
First,  where  one  gives  a  promissory  note  to  his  retiring  partner,  cover- 
ing partnership  funds  advanced  b}'  the  partner  so  retiring,  and  used  in 
the  business,  can  failure  of  consideration  based  upon  the  alleged  facts 
that  no  final  settlement  has  ever  been  had  of  the  partnership  affairs, 
and  that  upon  such  settlement  there  would  be  nothing  due  thereon,  be 
shown  in  defence  to  an  action  at  law  upon  said  note.  ...  1.  It  is 
contended  that  when  the  $1,800  for  which  the  note  was  given  was  put 
into  the  business  by  Daniel  Wilson,  being  a  contribution  to  the  capital 
invested,  it  became  the  property  of  the  partnership;  that  this  invest- 
ment or  propert}7  constitutes  the  consideration  for  the  note  in  question  ; 
and  that  being  the  property  of  neither  party,  but  of  the  co-partnership, 
it  could  not  constitute  a  consideration  moving  from  Daniel  Wilson  to 
the  defendants,  and  therefore  would  not  support  a  note.  The  purpose 
of  the  evidence  offered  and  refused  was  to  show  that,  at  the  time  this 
note  was  given,  there  had  been  no  settlement,  either  partial  or  com- 
plete, of  the  partnership  business,  and  that,  upon  a  final  settlement  of 
the  partnership,  there  would  be  nothing  due  the  plaintiff.  It  is  alleged 
in  defendants'  answer,  however,  that  Daniel  Wilson,  after  he  had 
expended  about  $2,380,  withdrew  from  the  partnership,  and  that  W.  C. 
Wilson  promised  to  pay  him  this  amount  on  condition  that  he  should 
make  it  out  of  the  mine.  The  note  in  contest  was  thereupon  executed, 
covering  $1,800  of  this  $2,380.  So  that  it  may  be  reasonably  inferred 
from  the  answer  and  the  proofs  offered  that  there  was  a  dissolution  of 
the  partnership  at  the  time  the  note  was  executed,  although  no  final 
settlement  of  its  affairs  was  had.  W.  C.  Wilson  thereafter  continued 
in  possession  of  the  mine,  working  it  every  year  since,  and  enjoying 
the  benefit  of  the  funds  expended  thereon  in  making  the  necessary 


§  4.]  ACTIONS   AT   LAW   BETWEEN    PAETNE] 

improvements  to  put  it  in  a  working  condition  ;  but  this  docs  not 
answer  the  defendants'  contention  that  the  consideration  of  the  note 
was  funds  that  the  partnership  had  received,  and  not  the  defendant, 
W.  C.  Wilson.  Unless  there  has  been,  by  some  act  of  the  parties,  a 
segregation  of  such  funds  from  the  general  partnership  property,  and 
an  appropriation  thereof  by  the  defendant,  W.  C.  Wilson,  for  which 
he  aud  his  co-defendant  executed  their  note  to  Daniel  Wilson,  there  is. 
in  fact,  no  sufficient  or  legal  consideration  to  support  the  note.  [f  :i 
person  receives  funds  or  property  of  a  partnership  of  which  he  is  a 
member,  he  becomes  a  debtor  to  the  partnership,  and  not  to  the  other 
members  thereof;  and  so,  if  one  partner  loans  money  to  the  partner- 
ship, he  becomes  a  creditor  of  the  partnership,  and  not  of  the  remain- 
ing members.  In  neither  case  could  an  action  be  maintained  by  or 
against  the  partnership.  This  is  so,  for  the  obvious  reason  that  it  is 
not  permissible  for  a  party  to  sue  himself. 

It  is  also  true,  as  a  general  rule,  that  until  the  accounts  of  the  part- 
ners are  finally  adjusted,  or  until  the  affairs  of  the  linn  are  so  far  set- 
tled as  that  nothing  remains  to  be  done  by  it  or  its  members  except  to 
ascertain  the  final  state  of  the  account  between  the  partners,  no  action 
can  be  maintained  by  one  partner  against  the  other  in  respect  of  par- 
ticular items  of  account  pertaining  to  the  partnership  business.  But 
there  are  exceptions  to  this  general  rule,  and  a  prominent  one  is  where 
the  sum  sought  to  be  recovered  is  separated  from  the  partnership 
account.  1  Colly.  Partn.  §258;  Bonnaffe  v.  Fenner,  6  S.  &  M.  212; 
45  Am.  Dec.  278.  So  a  partner  may  sue  his  associate  at  law  upon  a 
note  or  duebill  given  him  on  a  partial  settlement  of  the  partnership 
affairs.  Sturges  v.  Swift,  32  Miss.  239.  The  giving  of  a  promissory 
note  b}-  one  partner  to  another  is  an  isolation  of  the  demand  in  respect 
of  which  the  note  was  given  from  the  general  partnership  account. 
2  Lindl.  Partn.  *  565  ;  1  Colly.  Partn.  §  257  ;  Bonnaffe  v.  Fenner, 
supra;  Merrill  v.  Green,  55  N.  Y.  270;  Griggshy  /•.  Nance.  :)  Ala. 
350,  351  ;  Scott  v.  Campbell,  30  Ala.  728.  Chief  Justice  .Marshall,  in 
Van  Ness  v.  Forrest,  8  C ranch,  33,  says:  "  It  is  alleged  that,  at  law, 
one  partner  can  sue  another  on  a  claim  growing  out  of  the  partnership 
in  no  other  case  than  for  a  general  balance  on  a  stated  account.  The 
terms  in  which  this  proposition  has  been  laid  down  are.  perhaps,  too 
general.  In  the  case  at  bar,  the  suit  is  instituted  on  a  promissory  note 
given,  not  to  the  compam-,  but  to  Joseph  Forrest,  president  of  the 
compan}'.  Although  the  original  cause  of  action  does  not  merge  in 
this  note,  )"et  a  suit  is  clearly  sustainable  on  the  note  itself.  .  .  .  The 
principle  that  a  company  cannot  sue  its  members  does  not  apply  to  the 
case  ;  nor  does  the  principle  that  a  partner  cannot  sue  a  partner  on  a 
partnership  transaction  apply  to  any  case  where  a  note  in  writing  is 
given  for  money,  not  to  a  firm,  but  to  an  individual  member."  So  it 
would  appear  that  an  action  at  law  is  maintainable  by  one  partner 
against  another  upon  a  promissory  note  executed  by  the  one  to  the 
other,  involving  particular  items  or  transactions  of  the    partnership 


540        DUTIES   AND    LIABILITIES    OF    PARTNERS    INTER   SE.      [CHAP.  VI. 

business,  upon  the  ground  that  the  giving  of  the  note  is  an  isolation  or 
separation  of  the  particular  matter  from  the  general  partnership  account, 
and  that  an  accounting  and  final  settlement  of  the  partnership  affairs  is 
not  necessarily  involved  in  such  action  ;  that  the  execution  of  the  note 
is  such  an  acknowledgment  of  isolation  or  elimination  of  the  particu- 
lar transaction  from  the  general  partnership  account  as  that  the  maker 
will  be  estopped  at  law  from  questioning  the  holder's  right  of  action 
thereon. 

2.  We  are  aware  of  authorities  which  hold  that  a  promissory  note 
given  by  one  partner  to  another  in  settlement  of  particular  transactions 
of  a  partnership,  prior  to  the  final  settlement  and  adjustment  of  the 
general  partnership  affairs,  will  not  support  an  action  at  law  ;  that,  the 
maker  being  under  no  legal  or  equitable  obligation  to  pay  that  for 
which  the  note  was  given,  it  is  therefore  a  mere  nudum  pactum,  and 
can  have  no  greater  force  or  effect  than  an  express  promise  would  have 
if  made  under  like  circumstances  in  any  other  form.  Of  such  are 
Martin  v.  Stubbings,  20  111.  App.  308  ;  Stafford  v.  Fargo,  35  111.  481  ; 
and  Sewell  v.  Cooper,  21  La.  Ann.  582.  Without  attempting  to  dis- 
tinguish or  criticise  these  cases,  we  note  that  in  all  of  them  the  doctrine 
is  maintained  that  it  is  sufficient  to  defeat  an  action  upon  a  note 
given  bjT  one  partner  to  another,  to  answer  that  the  note  was  based  upon 
transactions  touching  the  business  in  which  the  partners  were  engaged 
as  such,  and  that  no  final  accounting  or  settlement  of  partnership  affairs 
has  been  had,  and  that  a  mere  showing  of  this  state  of  affairs  will 
defeat  the  action  at  law.  This  recognizes  a  sort  of  an  equitable  plea  in 
abatement  which,  in  effect,  bars  the  action.  It  is  altogether  clear  that 
an  accounting  between  partners  cannot  be  had  at  law,  and,  upon  prin- 
ciple, a  mere  suggestion  that  an  accounting  is  necessary  ought  not  to 
defeat  an  action  when  the  parties  have,  by  giving  and  taking  a  prom- 
issory note,  expressly  recognized  that  a  right  of  action  at  law  exists.  If 
equitable  reasons  exist  why  a  defendant  should  not  pay  his  note  in  whole 
or  in  part,  the  remedy  in  equity  is  ample.  (After  citing  Burns  v.  Scott, 
117  U.  S.  586  ;  Mitchell  v.  Wells,  54  Mich.  129  ;  and  Sturges  v.  Swift, 
32  Miss.  239,  to  the  proposition  that  defendant's  relief  is  by  injunc- 
tion until  a  settlement  of  the  firm  affairs  is  had,  the  learned  judge 
continued  : )  Under  our  statute,  such  equitable  relief  may  be  had  by 
way  of  cross-bill  in  equity.  .  .  .  The  defendants  have  given  the  right  of 
action  at  law  by  the  execution  and  delivery  of  their  promissory  note, 
and  the  remedy  adopted  by  plaintiff  is  available  to  him  unless  restrained 
by  a  competent  equitable  tribunal,  for  which  the  law  has  made  ample 
provisions.  .  .  .  Affirmed. 


§  4]  ACTIONS    AT    LAW    BETWEEN    PAETNEBS.  541 

GLADE    v.    WHITE. 
42  Neb.  336:  60  N.  W.  556.     1894. 

Irvine,  C.  .  .  .  The  petition  alleged,  in  substance,  that  the  plaintiff 
and  defendant  had  been  partners  ;  that  the  partnership  was  dissolved  in 
December,  1888,  at  which  time  all  claims  as  they  appeared  on  the  books 
of  the  firm  were  bought  by  the  plaintiff;  that  the  books  were  not  in  all 
instances  correct;  that  in  November,  188s.  the  defendant  had  drawn  a 
check  upon  the  bank  account  of  the  linn,  amounting  to  8118.45,  and 
appropriated  its  proceeds  to  his  own  use  without  accounting  therefor; 
that  the  defendant  had  obtained  possession  of  certain  grain  (describing 
it),  which  he  had  appropriated  to  his  own  use,  and  not  accounted  !'<>r ; 
and  that  certain  accounts  had  been  collected  by  the  defendant,  and  the 
money  not  turned  over  to  the  plaintiff.  While  the  petition  is  net  very 
artistically  drawn,  it  does  charge  that  there  had  been  a  partnership; 
that  there  had  been  a  dissolution;  that  by  the  dissolution  the  plaintiff 
had  become  entitled  to  the  indebtedness  owing  the  firm;  and  that 
certain  items  of  this  indebtedness  the  defendant  had  collected  and 
appropriated  to  his  own  use.  The  allegations  in  regard  to  the  ap- 
propriation of  the  grain  ma}-  be  disregarded.  If  the}'  belonged  in  a 
separate  account,  the  remedy  was  by  a  motion  to  require  a  separate 
statement,  and,  if  the  averments  in  regard  to  the  accounts  would  in 
themselves  be  sufficient  against  demurrer,  those  in  regard  to  the  grain 
were  at  most  surplusage. 

The  demurrer  was  upon  three  grounds:  First,  that  plaintiff  has  not 
legal  capacity  to  sue  ;  second,  that  the  court  had  no  jurisdiction  of  the 
subject  matter;  third,  that  the  petition  did  not  state  facts  sufficient  to 
constitute  a  cause  of  action. 

We  hardly  understand  upon  what  theory  the  defendant  contends  that 
the  plaintiff  had  not  legal  capacity  to  sue.  Certainly,  no  incapacity  is 
disclosed  in  the  petition.  It  would  seem  from  the  argument  that  the 
only  point  claimed  under  this  head  is  that  the  petition  discloses  that 
the  action  concerned  partnership  matters,  and  that  therefore  the  plain- 
tiff could  not  sue  at  law.  This  objection  does  not  go  to  his  legal  capa- 
city, and  will  be  considered  in  connection  with  the  third  assignment  of 
the  demurrer. 

It  is  urged  that  the  Count}'  Court  had  no  jurisdiction  of  the  subject 
matter,  because,  if  the  petition  did  state  a  cause  of  action,  it  must  lie 
one  in  equity  for  an  accounting,  and  the  County  Court  has  no  jurisdic- 
tion of  such  cases.  The  petition  does  not  state  a  case  for  an  account- 
ing. It  must  stand  or  fall  as  an  action  for  the  recovery  of  specific 
sums  of  money,  and  therefore,  if  it  does  state  a  cause  of  action,  it  i~. 
clearly  one  within  the  jurisdiction  of  the  County  Court,  less  than  $1,000 
being  claimed.  But  we  wish  here  to  take  occasion  to  say  that  the 
jurisdiction  of  the  County  Court  does  not  depend  upon  the  old  dis- 
tinctions  between   actions  at   law   and   in   equity.   .    .   . 


542      .  DUTIES    AND    LIABILITIES    OF   PARTNERS   INTER   SE.       [CHAP.  VI. 

Does  the  petition  state  facts  sufficient  to  constitute  a  cause  of  action  ? 
It  has  been  recentl}'  held  that  an  action  at  law  cannot  be  maintained 
by  one  partner  against  his  co-partner,  to  recover  moneys  alleged  to  be 
due  him  on  account  of  partnership  transactions,  where  no  settlement  of 
the  partnership  accounts  and  business  has  been  had.  Lord  v.  Peaks, 
41  Neb.  891.  This  case  declares  that  the  general  rule  in  such  matters 
is  in  force  in  this  State.  In  view  of  the  abandonment  here  of  technical 
distinctions  between  law  and  equity,  the  rule  means  that  a  petition 
under  such  a  state  of  facts  must,  in  order  to  state  a  cause  of  action, 
present  a  case  for  dissolution  or  accounting,  and  that  single  transactions 
cannot  be  selected  and  made  the  basis  of  independent  suits.  The 
reasons  for  this  rule  are  by  a  late  writer  summarized  as  follows  :  That 
the  mutual  balances  fluctuate,  and  to  permit  actions  on  single  trans- 
actions would  disregard  the  rights  of  other  partners  on  the  state  of 
their  accounts  ;  that  such  actions  would  lead  to  a  multiplicity  of  suits  ; 
that  the  ascertainment  of  balances  requires  an  examination  which  can- 
not be  safely  submitted  to  a  jury  ;  that  actions  by  one  partner,  if  en- 
forceable, would  be  to  appropriate  partnership  property  to  the  ex- 
clusion of  creditors,  and  in  violation  of  the  liens  of  the  others  ;  that 
such  an  action  would  be  really  against  the  firm,  and  a  partner  suing 
would  be  on  both  sides  of  the  record ;  and  that  the  debt  would  be 
partnership  assets  not  collectible  by  one  member.  Bates,  Partn.  §  849. 
This  petition  avers  a  state  of  facts  which  removes  all  of  these  objections. 
It  avers  that  the  partnership  had  been  dissolved  ;  that  the  indebtedness 
due  the  firm  had  been  purchased  by  plaintiff,  and  was  therefore  no 
longer  partnership  assets.  The  petition  in  effect  alleges  the  partner- 
ship transactions  merely  by  way  of  inducement  and  charges,  in  sub- 
stance, that  the  defendant  had  received  certain  mone3*s  which,  ex  aequo 
et  bono,  belonged  to  the  plaintiff.  This  would  make  a  case  for  money 
had  and  received  under  the  old  procedure.  The  authorities  support 
this  view.  Tbus,  on  the  settlement  of  partnership  matters,  there  was 
a  disputed  item  which  one  of  the  partners  alleged  he  had  paid  to  a 
third  person  for  the  other  partner,  and  promised  to  pay  it  to  him  if  the 
third  person  did  not.  A  settlement  was  made  on  that  basis,  the  item 
being  charged  to  the  partner  for  whom  it  was  claimed  to  have  been 
paid.  It  was  afterwards  learned  that  the  money  had  not  been  paid  to 
such  third  person,  and  it  was  held  that  the  partner  to  whom  the  amount 
had  been  charged  could  recover  the  same  against  the  other  partner  in 
an  action  at  law.  The  court  said:  "On  allowance  of  it  by  Funk, 
moved  thereto  by  the  false  pretence  of  Adams,  it  became  money  in 
Adams'  hands  for  the  use  of  Funk,  and  for  which  he  could  maintain  an 
action  for  money  had  and  received."     Adams  v.  Funk,  53  111.  219. 

Russell  v.  Grimes,  46  Mo.  410,  was  a  case  veiy  similar  to  the  pres- 
ent. There  had  been  a  partnership  accounting  by  action,  in  which  the 
debts  due  the  firm  were  divided  between  the  partners.  Thereafter  it 
was  ascertained  that  one  of  the  partners  had  collected  a  portion  of 
certain  notes  payable  to  the  firm,  which  had  been  turned  in  to  the  other 


§4.]  ACTIONS    AT   LAW    BETWEEN    PARTNERS.  543 

partner  at  their  face.  The  court  said:  "The  petition  so  far  does  not 
seek  to  settle  the  partnership  accounts,  nor  does  it  attack  the  settle- 
ment already  made.  It  simply  charges  the  defendant  with  having 
received  money  upon  claims  which,  by  the  settlement,  became  the 
individual  property  of  the  plaintiff;  and  the  plaintiff  then  acquired  a 
separate  property,  not  only  in  the  balance  due  upon  those  claims,  but, 
as  against  his  partner,  to  their  full  amount."  It  was  laid  thai  a 
petition  charging  such  facts  stated  a  cause  of  action.  To  the  same 
effect  are  Ross  v.  West.  2  Bosw.  3G0  ;  Crosby  v.  Nichols,  3  Bosw.  150 ; 
Wicks  v.  Lippman,  13  Nev.  199.  The  case  of  Russell  v.  Grimes, 
supra,  contains  language  and  reasoning  supporting  the  petition  in 
this  case,  both  as  to  the  moi^s  received  and  the  appropriation  of 
specific  property.  We  think  the  petition  stated  a  cause  of  action,  and 
that  the  judgments  of  the  district  and  county  courts  were  right. 

-  \jjirmed. 


DAVIS,  J.,  in  NEWBY  v.  HARRELL  et  al. 
99  N.  C.  149.   1888. 

In  this  case  the  instructions  asked  for  were  substantially  given, 
except  the  first,  and  that  presents  the  question  :  Can  one  partner  main- 
tain an  action  against  a  co-partner  for  injur}-  to  his  separate  and  indi- 
vidual property  used  in  the  co-partnership  business,  if  such  injury  is 
the  result  of  negligence  or  tort  of  the  co-partner? 

It  maybe  laid  down  as  a  general  rule,  that  before  one  partner  can 
sue  another  at  law,  the  settlement  of  the  firm  must  be  complete,  and 
his  right  to  recover  only  arises  after  a  settlement  of  all  partnership 
business.  Graham  v.  Holt,  3  lied.  300,  or  as  laid  down  by  Colbyer  on 
Partnership,  §  269,  one  partner  cannot  maintain  an  action  against  a 
co-partner  to  recover  mone}%  when  the  sura  sought  to  be  recovered 
might  be  placed  as  an  item  in  the  partnership  account.  Among  the 
exceptions  to  the  general  rule  is  the  right  of  one  partner  to  maintain 
an  action  against  another  for  the  destruction  of  the  joint  property,  or 
its  wrongful  conversion.  Lucas  v.  Watson,  3  Dev.  398  j  Colly,  on 
Partn.  §  382.  If  one  partner  may  maintain  an  action  against  another 
for  the  destruction  of  the  joint  property,  a  fortiori,  may  the  action  be 
maintained  when  the  propert}r  destroyed  is  the  individual  property  of 
a  partner  used  in  the  business  of  the  partnership? 


CHAPTEE  VII. 
dissolution  of  partnerships. 

§  1.     By  Opekation  of   Law. 

GRISWOLD  et  al.  v.  WADDINGTON  et  al. 

15  Johnson    (X.  Y.),  57.     1818. 

Action  of  assumpsit  to  recover  a  balance  of  account  arising  on 
transactions  between  the  plaintiffs,  citizens  of  the  United  States,  and 
the  firm  of  Henry  Waddington  &  Co.,  during  the  late  war  between  this 
country  and  Great  Britain.  Verdict  for  the  plaintiffs  for  $17,757.09, 
subject  to  the  opinion  of  the  court. 

Griffin  and  Colclen,  for  the  plaintiff. 

Wells  and  T.  A.  Emmett,  contra. 

Spencer,  J.  This  cause  has  given  rise  to  several  novel  and  import- 
ant questions  ;  and  when  the  interesting  results,  growing  out  of  these 
questions,  are  duly  estimated,  it  is  impossible  to  approach  them  without 
great  solicitude  and  anxiety. 

In  considering  this  cause,  I  have  found  it  nnecessary  to  decide  some 
of  the  points  which  were  ably  discussed  by  the  counsel ;  for,  having 
arrived  at  a  satisfactory  conclusion  on  one  of  them,  which  must  be 
decisive  as  to  the  plaintiff's  claim,  I  have  considered  it  unnecessary  to 
express  any  opinion  on  the  others. 

Upon  the  fullest  reflection  which  I  have  been  able  to  give  to  the  sub- 
ject, my  opinion  is  that  the  declaration  of  war  between  the  United 
States  and  Great  Britain  produced  a  suspension  during  the  war,  or, 
ipso  facto,  a  dissolution  of  the  partnership  previously  existing  between 
the  defendants,  so  that  the  one  is  not  responsible  upon  the  contract, 
express  or  implied,  of  the  other.  It  will  be  perceived  that  this  prop- 
osition assumes  the  fact  that  the  partnership  between  the  defendants 
had  not  become  dissolved  by  the  efflux  of  time,  or  the  acts  of  either 
of  the  partners,  although  this  point  is,  in  itself,  very  questionable. 
The  better  conclusion  from  the  evidence  is,  that  the  partnership  expired 
by  its  own  limitation  during  the  war ;  that  the  existence  of  the  war 
would,  at  all  events,  dispense  with  the  public  notice  which  is,  in  general, 
necessary  to  the  valid  dissolution  of  a  partnership. 

The  case  discloses  that  the  firm  of  Henry  Waddington  &  Co.  con- 
sisted of  Henry  and  Joshua  Waddington,  that  Henry  is  a  British  sub- 
ject, resident,  before  and  during  the  war,  in  London,  conducting  the 
partnership  concerns  there,  whilst  the  defendant  was  resident  here. 
The   negotiations  which  gave  rise  to  the  present  suit  took  place  in 


§  1.]  BY    OPERATION    OF    LAW.  545 

England,  and  exclusively  with  Henry  Waddington,  during  the  late  war 
between  this  country  and  Great  Britain. 

It  was  admitted  on  the  argument,  and  so  the  fact  undoubtedly  is, 
that  the  proposition  I  have  advanced  is  neither  supported  nor  denied 
by  an}"  judicial  decisions  or  elementary  writer  of  the  common  law  ; 
but  if  I  mistake  not,  it  is  supported  by  the  strongest  reasons,  and  by 
necessary  analogy  with  adjudged  eases. 

The  first  inquiry  is,  What  are  the  objects  and  ends  of  partner-hips? 
The}'  are  entered  into  with  the  view,  that,  with  the  joint  funds,  skill, 
and  labor  of  the  several  partners,  the  interests  of  the  concern  may  be 
advanced  and  promoted.  There  may  be.  and  frequently  are.  different 
inducements  influencing  each  partner:  one  may  have  more  capital  and 
credit ;  another  may  have  more  skill,  activity,  and  experience.  The 
one  may  choose  to  be  a  dormant  and  inert  partner,  furnishing  an  equiv- 
alent for  the  services  and  skill  of  the  other,  and  leaving  the  business 
entirely  to  his  control  and  management.  But,  unexplained  as  this 
partnership  is,  we  must  understand  it  to  be,  a  union  with  a  view  to  the 
employment  of  the  joint  capital,  labor,  and  skill,  of  both  the  partners, 
for  the  purposes  of  internal  and  external  commerce  between  this  coun- 
try and  Great  Britain.  That  the  object  of  the  partnership  embraced 
both  these  objects  of  internal  and  external  trade,  would  seem  to  be 
unquestionable  from  the  local  position  of  the  partners. 

That  the  death,  insanity,  and  bankruptcy,  of  one  of  the  partners, 
operates  as  a  dissolution,  was  not  questioned  in  the  argument;  and 
a  respectable  elementary  writer,  Mr.  Watson,  is  of  the  opinion  that  the 
marriage  of  a,  feme  sole  partner  would  produce  the  same  consequence. 
The  cases  of  Pearce  v.  Chamberlain,  2  Yes.  33,  and  Saver  v.  Bennet, 
Watson,  382,  and  several  other  cases  cited  by  him,  all  go  to  establish 
the  general  principle,  that  death,  insanity,  and  bankruptcy  work  a  dis- 
solution of  partnerships  ;  and  they  proceed  on  the  principle,  that  the 
other  partners  are  not  bound  to  admit  the  representatives  of  a  deceased 
or  insane  partner  into  the  concern,  the  confidence  having  been  orig- 
inally placed  in  the  personal  skill  and  assistance  of  those  no  longer 
able  to  afford  it. 

Let  these  principles  be  applied  to  the  present  case,  and  it  would 
seem  that  the  same  result  is  inevitable.  In  what  situation  did  the  war 
put  the  defendants,  as  regarded  each  other?  Most  undeniably,  the 
two  nations,  and  all  their  citizens,  or  subjects,  became  enemies  of  each 
other,  and  the  consequence  of  this  hostility  was,  that  all  intercourse  ami 
communication  between  them  became  unlawful.  This  is  not  only  the 
acknowledged  principle  of  the  law  of  nations,  but  it  is  also  a  part  of 
the  municipal  jurisprudence  of  every  country.  I  need  not  cite  cases  in 
support  of  a  position,  which  has  so  repeatedly  been  recognized  in  the 
English  courts,  and  in  our  own,  possessing  as  well  admiralty  as  com- 
mon law  jurisdiction.  Another  consequence  of  the  war  was,  that  the 
shipments  made  by  each  of  the  partners  would  be  liable  to  capture  and 
condemnation,  by  the  cruisers  of  the  government  of  the  other  ;  and  another 


546  DISSOLUTION    OF   PARTNERSHIPS.  [CHAP.  VII. 

very  serious  evil  attended  them  ;  no  debts  contracted  in  the  partnership 
name  could  be  recovered  in  the  courts  of  either  nation  ;  they  not  having, 
in  the  language  of  the  law,  a  persona  standi  .in  judicio  whilst  they 
were  amenable  to  suits  in  the  courts  of  both  nations.  The  Hoop,  1  Rob. 
201.  It  is  true,  the  same  disability  to  sue  for  debts  due  the  firm  ante- 
cedent to  the  war,  would  exist.  This,  however,  does  not  weaken  the 
objection  ;  it  remains  still  an  important  item,  in  considering  whether 
a  partnership  exists,  when  the  new  debts  created  are  to  be  liable  to  the 
same  disability.  It  appeal's  that  Joshua  Waddington  is  a  citizen  of 
the  United  States ;  and  it  has  been  already  mentioned  that  Henry 
Waddington  is  a  British  born  subject.  The}'  owed  different  allegiances, 
and  it  became  part  of  their  duty  to  lend  all  their  aid  in  a  vigorous 
prosecution  of  the  war,  the  one  to  the  United  States,  and  the  other 
to  Great  Britain  ;  and  it  appears  to  me,  that  it  would  not  comport  with 
policy  or  morality,  that  the  law  should  imperiously  continue  a  connec 
tion,  when,  by  its  very  continuance,  it  would  afford  such  strong  induce- 
ments to  a  violation  of  that  fidelity  which  each  owes  to  his  government. 
Again,  all  communication  and  intercourse  being  rendered  unlawful, 
and  it  being  a  well-established  principle  that  either  partner  may,  by  his 
own  act,  dissolve  a  partnership,  unless  restrained  to  continue  it  for  a 
definite  period  by  compact,  in  what  manner  could  such  intentions 
be  manifested  during  the  war?  It  might,  indeed,  be  made  known  to  the 
public  of  one  of  the  countries,  but  it  could  not  be  notified  to  the  public 
of  the  hostile  country  ;  and  thus,  unless  the  war  produced  a  dissolution, 
he  would  be  responsible,  notwithstanding  he  had  the  desire  to  dissolve 
the  connection,  merely  from  inability  to  make  known  that  determina- 
tion ;  an  inabilit}'  produced  by  events  utterly  uncontrollable.  When 
the  objects  and  intentions  of  a  union  of  two  or  more  individuals,  to 
prosecute  commercial  business,  are  considered  ;  when  it  is  seen  that  an 
event  has  taken  place,  without  their  fault,  and  beyond  their  control, 
which  renders  their  respective  nations,  and,  along  with  them,  the 
defendants  themselves,  enemies  of  each  other ;  that  all  communication 
and  intercourse  has  become  unlawful ;  that  they  can  no  longer  co- 
operate in  the  conduct  of  their  common  business,  by  affording  each 
other  advice,  and  are  kept  hoodwinked  as  to  the  conduct  of  each  other; 
that  the  trade  itself,  in  which  the}'  were  engaged,  has  ceased  to  exist*, 
that,  if  the}'  enter  into  any  contracts,  they  are  incapable  of  enforcing 
their  performance  by  an  appeal  to  the  courts  ;  that  their  allegiance 
leads  them  to  support  opposite  and  conflicting  interests  ;  —  I  am  com- 
pelled to  say  that  the  law  cannot  be  so  unjust  as  to  pronounce  that  a 
partnership,  so  circumstanced,  when  all  its  objects  and  ends  are  pros- 
trated, shall  continue  ;  and  with  the  clearest  conviction  upon  my  mind, 
and  in  analogy  to  the  cases  to  which  reference  has  been  made,  I  have 
come  to  the  conclusion,  that  the  partnership  between  the  defendants 
was,  at  least,  suspended  ;  and  I  incline  to  the  opinion,  that  it  was,  ipso 
facto,  dissolved  by  the  war,  and,  consequently,  that  the  defendant 
Joshua  Waddington  is  not  liable  to  this  action.  .  .  . 


§  l.J  BY   OPEBATION   OF   LAW.  547 

It  has,  too,  been  strongly  put  that  the  plaintiffs  contracted  this  debt 
•with  the  firm  on  the  faith  that  Joshua  Waddington  was  a  partner,  and 
that  he  ought  to  have  publicly  communicated  the  dissolution  of  the 
partnership.  I  am  perfectly  satisfied  that  Joshua  Waddington  has  acted 
in  good  faith  ;  there  is  no  pretence  that  he  has  done  anything  to  mis- 
lead the  plaintiffs,  or  the  public,  unless  his  silence  be  so  considered.  If 
the  law  worked  a  suspension  or  dissolution  of  the  partnership,  even- 
person  dealing  with  Henry  Waddington  was  bound  to  take  notice  of  that 
fact ;  and  with  the  old  dealers  of  the  firm  there  was  knowledge  of  all 
the  material  facts  which  enter  into  determination  of  the  cause. 

tTiahjintnt  j'or  the  defendant.* 


MARLETT    v.  JACKMAN   et  al. 

3  Allen  (Mass.),  257.     18(31. 

Contract  upon  a  promissoiy  note  for  $1,000,  dated  Boston,  June  30, 
1855,  signed  "  Jackman,  Hathaway,  &  Co.,"  payable  to  the  order  of 
William  J.  Marlett  in  six  months  after  date,  at  the  Bank  of  Syracuse, 
New  York,  and  by  him  indorsed  to  the  plaintiff.  Jackman  and  Hath- 
away alone  defended  the  action,  and  in  their  several  answers  set  forth, 
among  other  things,  that  if  any  such  firm  as  Jackman,  Hathaway,  &  Co. 
ever  existed,  it  had  expired  and. was  dissolved  before  the  note  was 
given. 

At  the  trial  the  plaintiff  introduced  evidence  tending  to  show  that  in 
1852  and  1853  the  defendants  Jackman  and  Hathaway,  together  with 
Ivory  Chick  and  H.  B.  Leach,  were  partners  under  the  firm  of  Jack- 
man,  Hathaway,  &  Co.,  and  engaged  in  constructing  railroads;  and 
that  the  note  in  suit  was  signed  with  the  name  of  the  firm  by  said  Leach 
at  Boston  on  the  day  of  its  date.  The  defendants  introduced  evidence 
to  show  that  Ivory  Chick  died  on  the  8th  of  March,  1854,  and  asked 
the  court  to  instruct  the  jury  that  his  death  dissolved  the  firm,  and  that 
they  were  not  liable  to  pay  a  note  signed  by  him  afterwards  without 
their  consent  or  knowledge.  The  judge  instructed  the  jury  that 
although  Chick  died  before  the  note  was  signed,  and  his  death  dissolved 
the  firm,  and  his  estate  would  not  be  liable  for  debts  subsequently  con- 
tracted by  a  surviving  partner  in  the  name  of  the  firm,  yet  the  other 
surviving  partners  would  be  bound  by  the  act  of  Leach  in  signing  the 
note  in  suit,  unless  William  J.  Marlett  had  been  notified  or  had  knowl- 
edge of  Chick's  death  at  the  time  of  taking  it. 

The   jury  returned  a  verdict   for  the   plaintiff,  and  the  defendants 
alleged  exceptions. 

S.  Bartlett  &  J.  W.  Hubbard,  for  the  defendant  Jackman. 

G.  Putnam,  Jr.,  for  the  defendant  Hathaway. 

T.  L.  Wakefield  &  J.  Lathrop,  for  the  plaintiff. 

i  Affirmed,  10  Johns.  438. 


548  DISSOLUTION   OF   PARTNERSHIPS.  [CHAP.  VII. 

Bigelow,  C.  J.  It  is  certainly  somewhat  remarkable  that  no  case 
can  be  found  either  in  this  country  or  in  England  in  which  the  question 
has  arisen  and  been  adjudicated  whether,  in  case  a  co-partnership  is 
dissolved  by  death,  the  surviving  partners  are  bound  to  give  notice  of 
such  dissolution,  in  order  to  avoid  a  liability  occasioned  b}'  the  sub- 
sequent misuse  of  the  co-partnership  name  by  one  of  the  firm.  The 
adjudged  cases  have  gone  no  further  than  to  hold  that  neither  the 
estate  of  the  deceased  partner  nor  his  heirs  or  personal  representatives 
can  be  held  on  a  contract  entered  into  in  the  name  of  the  firm  subse- 
quently to  his  death,  although  no  notice  of  the  dissolution  of  the  firm 
has  been  given.  Vulliamy  v.  Noble,  3  Meriv.  614  ;  Webster  v.  Webster, 
3  Swanst.  490  and  note;  Caldwell  v.  Stileman,  1  Rawle,  212;  Wash- 
burn v.  Goodman,  17  Pick.  519,  526.  Two  text  writers,  however,  of 
great  learning  and  authority  have  laid  down  the  rule  that  where  a  co- 
partnership is  dissolved  by  the  death  of  one  of  the  co-partners,  no 
notice  of  the  dissolution  is  necessaiy,  and  that  the  surviving  members 
are  not  bound  by  any  new  contract  entered  into  by  one  of  the  firm  in 
the  co-partnership  name  after  such  dissolution,  although  it  is  made 
with  a  person  who  had  previously  dealt  with  the  firm  and  had  no  notice 
or  knowledge  that  it  was  terminated  by  the  death  of  one  of  the  mem- 
bers. 3  Kent,  Com.  (6th  ed.)  63,  67  ;  Story  on  Partn.  §§319, 336,  339. 
The  same  doctrine  is  stated  by  the  American  editor  of  Colly.  Partn.  (3d 
Amer.  ed.)  §§  120,  538.  In  determining  judicially  whether  this  state- 
ment of  the  rule  is  correct,  we  must  take  into  consideration  the  nature 
of  the  relation  of  co-partners  between  themselves  and  towards  third 
persons,  and  endeavor  to  ascertain  whether  the  doctrine  of  the  text 
writers  is  supported  by  analogy,  and  consistent  with  the  general  princi- 
ples on  which  the  law  of  partnership  is  founded. 

Starting  then  with  the  admitted  proposition  that  death  works  an 
immediate  dissolution  of  a  firm,  and  that  thereby  the  estate  of  the 
deceased  partner  and  his  personal  representatives,  as  well  as  his  share 
of  the  assets  of  the  firm,  are  absolutely  relieved  and  absolved  from  an}' 
new  contracts  or  subsequent  transactions  of  the  surviving  partners 
which  are  not  necessary  to  the  settlement  of  the  joint  business,  the 
inquiry  at  once  arises  as  to  the  effect  of  such  a  dissolution  occasioned 
by  the  act  of  God  on  the  relative  rights  and  duties  of  the  surviving  co- 
partners. One  of  the  essential  elements  of  a  contract  of  co-partnership 
consists  in  the  rio-ht  which  each  member  has  to  the  continuance  of  all 
his  associates  as  members  of  the  firm.  If  one  withdraws,  the  co-part- 
nership is  at  an  end.  The  delectus  per sonarum  lies  at  the  foundation 
of  the  agreement  of  the  parties,  and  is  one  of  the  main  considerations 
on  which  it  rests.  The  personal  qualities  of  each  member  of  a  firm 
enter  largely  into  the  inducements  which  lead  parties  to  form  a  co- 
partnership ;  and  if  the  abilities  and  skill,  or  the  character  and  credit, 
of  any  one  are  withdrawn,  the  contract  between  them  is  terminated  and 
the  co-partnership  is  dissolved.  When,  therefore,  by  the  death  of  a 
member  of  a  firm,  his  personal  liabilit}'  ceases  and  his  estate  is  by 


§  1.]  BY   OPEBA.TION   OF   LAW.  549 

operation  of  law  absolved  from  all  future  contracts  and  transactions 
entered  into  in  the  name  of  the  firm,  it  would  seem  to  follow,  as  a 
necessary  consequence,  that  the  power  of  the  surviving  co-partners  to 
bind  each  other  by  new  contracts  and  engagements  must  at  once  cease. 
The  co-partnership  would  then  be  terminated  not  only  as  to  the  deceased 
partner  and  his  estate,  but  also  as  to  the  other  members  of  the  firm. 
The  delectus personarum  would  no  longer  exist.  The  contract  of  co- 
partnership did  not  confer  any  power  or  authority  on  the  several  co-part- 
ners to  bind  each  other  individually,  or  to  act  in  behalf  of  any  number 
of  them  less  than  the  whole.  The  co-partnership  constituted  the 
principal ;  and  the  several  co-partners  were  agents,  not  of  the  dif- 
ferent persons  comprising  the  firm,  but  only  of  all  taken  together 
and  forming  one  body  united  in  a  community  of  interest  fur  common 
objects.  If  then  the  members  of  the  firm  are  held  to  be  bound  by  a 
contract  entered  into  by  one  of  the  co-partners  in  the  name  of  the  (inn 
after  its  dissolution  by  the  death  of  a  member,  such  liability  does  not 
arise  or  grow  out  of  the  agreement  of  co-partnership.  On  the  contrary. 
it  is  directly  adverse  to  the  nature  and  spirit  of  the  contract  between 
the  parties.  No  such  agency  was  created  by  the  formation  of  the 
co-partnership.  It  presents  the  anomaly  of  holding  a  part}'  respon- 
sible for  the  act  of  an  agent  after  the  principal  —  the  co-partnership  — 
had  ceased  to  exist,  and  all  authority  to  act  in  its  behalf  had  been 
revoked  lw  the  act  of  God. 

On  what  principle,  then,  can  it  be  maintained  that  the  law  fastens 
on  persons  an  obligation  to  answer  for  contracts  entered  into  in  the 
name  of  a  principal  who  has  ceased  to  exist,  by  one  whose  authority  to 
act  is  absoluteby  terminated  ?  The  only  answer  that  can  be  made  to 
this  question  by  those  who  seek  to  sustain  the  obligation  of  such  con- 
tracts on  the  surviving  members  of  the  firm  is,  that  a  duty  is  devolved 
on  them  to  give  notice  of  its  dissolution  by  the  deatli  of  one  of  their 
associates,  and  that  an  omission  to  give  such  notice  renders  them  liable 
in  the  same  manner  as  if  the  co-partnership  had  not  ceased  to  exist. 
This  is  doubtless  the  rule  in  cases  where  the  dissolution  is  effected  by 
the  voluntary  act  of  the  parties,  or  results  from  any  state  of  facts  not 
public  or  notorious  in  their  nature,  and  which  are  more  peculiarly 
within  the  knowledge  of  the  members  of  the  firm.  But  it  rests  on  the 
principle  that  the  co-partners  are  guilty  of  negligence  in  leaving  the 
world  in  ignorance  of  such  facts,  which  third  persons  cannot  be  sup- 
posed to  have  the  means  of  ascertaining,  and  allowing  them  to  infer 
that  the  co-partnership  continues,  and  to  put  faith  and  confidence  in 
the  name  of  the  firm  in  consequence  of  such  belief.  3  Kent,  Com.  66  ; 
Story  on  Partn.  §  1G0.  In  determining  on  which  of  two  parties  a  burden 
or  a  loss  is  to  rest,  the  law  always  seeks  to  ascertain  whether  either 
has  been  guilty  of  any  neglect  or  omission,  which  has  misled  the  con- 
fidence or  operated  to  deceive  the  other,  and  requires  that  the  respon- 
sibility shall  be  placed  on  the  one  who  has  failed  to  do  thai  which  was 
necessary  in  the  exercise  of  due  diligence  or  fair  dealing.     Bui   this 


550  DISSOLUTION    OF   PARTNERSHIPS.  [CHAP.  VII 

salutary  principle  is  not  applicable  to  the  case  of  a  dissolution  of  a 
co-partnership  by  the  death  of  one  of  its  members.  The  sause  of  such 
a  termination  of  the  co-partnership  is  not  the  voluntary  act  of  the 
members.  It  does  not  result  from  any  private  transaction  between 
them,  nor  from  any  occurrence  or  fact  peculiarly  within  the  knowledge 
of  the  surviving  members  of  the  firm.  On  the  contrary,  the  death  of  a 
co-partner  may  often  occur  under  circumstances  in  which  the  knowledge 
of  the  event  may  not  come  to  his  associates  for  a  long  period  of  time. 
He  may  have  been  lost  at  sea,  or  have  died  in  a  distant  land.  In  such 
a  case,  if  the  co-partnership  is  held  to  continue  as  to  the  surviving  co- 
partners until  notice  of  the  death  is  given  by  them,  it  is  obvious  that 
they  might  be  held  liable  on  contracts  entered  into  by  one  of  their 
number  long  after  the  co-partnership  was  dissolved  among  themselves 
by  operation  of  law  ;  after  the  estate  and  effects  and  personal  credit 
of  the  deceased  co-partner  had  been  withdrawn,  and  the  power  and 
authority  of  any  of  the  firm  to  bind  his  associates  had  been  revoked. 
And  this,  too  without  an}*  neglect  or  omission  which  could  be  imputed 
to  them,  and  when  the}'  were  in  the  position  of  innocent  parties  who 
had  done  no  act  to  mislead  or  deceive  others,  and  had  not  ever  made 
the  contract  on  which  the}'  are  to  be  held  liable. 

To  parties  thus  situated,  the  more  just  and  reasonable  rule  would 
seem  to  be  applicable,  that  where  two  parties  stand  toward  each  other 
in  aequali  jure,  and  neither  has  been  guilty  of  any  negligence  ov  want 
of  good  faith,  their  respective  rights  must  be  settled  by  the  application 
of  the  strict  rule  of  law,  without  reference  to  any  supposed  equities 
arising  from  the  occurrence  of  an  event,  which  neither  party  anticipated 
or  could  prevent.  Certain  it  is,  that  the  reason  of  the  rule  which  re- 
quires in  cases  of  the  dissolution  of  a  firm  caused  by  the  voluntary 
act  of  the  parties,  or  by  circumstances  which  would  necessarily  come 
within  the  knowledge  of  the  co-partners  but  might  be  unknown  to  third 
persons,  that  notice  of  it  should  be  given  in  order  to  relieve  the  mem- 
bers from  future  responsibility,  does  not  apply  where  the  co-partnership 
is  terminated  by  death.  The  true  doctrine  on  this  point  is  well  stated 
by  Mr.  Bell,  in  his  learned  Commentaries  on  the  Laws  of  Scotland. 
"  The  opinion  has  certainly  prevailed  very  generally  that  no  notice  is 
necessary ;  that  the  partnership,  according  to  the  common  course  of 
the  law,  is  dissolved  by  death  ;  that  those  who  deal  with  the  company 
are  held  to  know  the  state  of  their  debtor  ;  and  that  the  publication  of 
all  deaths,  according  to  the  common  custom  of  the  world,  places  this 
sort  of  information  within  the  reach  of  ordinary  care  and  diligence." 
2  Bell,  Com.  (4th  ed.)  §  1234.  The  same  principle  is  stated  in  a  case 
adjudicated  by  the  Court  of  Session  in  Scotland  subsequently  to  the 
publication  of  Mr.  Bell's  learned  treatise.  "  Death  operates  a  dissolu- 
tion of  itself :  and,  being  a  public  fact,  all  men  are  bound  to  know  it." 
Christie  v.  Royal  Bank,  Cases  in  Court  of  Session  (1839),  745,  765. 
In  this  respect,  the  consequences  of  a  dissolution  by  death  are  the  same 
as  one  occasioned  by  war  between  two  countries  of  which  co-partners 


§  1  ]  BY   OPERATION   OF   LAW.  551 

are  respectively  citizens.  Xo  notice  is  required  to  be  given  when  a  fact 
is  of  a  public  nature.  Griswold  v.  Waddington,  15  Johns.  57  ;  .-.  c.  16 
Johns.  438.  Nor  can  it  make  any  difference  as  to  this  liability  of 
the  survivors,  that  they  knew  of  the  death  of  their  co-partner  and 
omitted  to  give  notice  of  it  to  the  person  with  whom  the  new  contract 
was  made.  As  the  fact  of  death  was  nut  in  its  nature  private  or  (.on- 
fined  within  the  knowledge  of  the  members  of  the  firm,  the  presumption 
is  that  third  persons  also  had  notice  of  it.  Therefore  the  liability  of 
survivors  upon  a  new  contract,  not  entered  into  by  themselves,  but  by 
one  of  their  associates  without  their  knowledge  or  assent  in  the  name 
of  the  firm,  cannot  be  made  to  depend  on  the  question  whether  they 
had  previous  notice  of  the  death.  They  ought  not  to  be  held  liable 
for  omitting  to  give  notice  of  that  which  other-  are  supposed  to  know. 
And  although  the  member  of  the  firm  who  actually  enters  into  a  con- 
tract may  be  responsible,  as  upon  a  contract  made  by  himself  individu- 
ally, or  on  the  ground  that  by  making  it  in  the  name  of  the  linn  after 
its  dissolution,  he  by  implication  represented  a  fact  to  be  true  which 
he  knew  to  be  false,  or  which  he  did  not  know  to  be  true,  and  thereby 
caused  loss  or  injury  to  an  innocent  third  party,  there  is  no  good  reason 
for  holding  the  other  co-partners  liable,  who  have  remained  passive  and 
done  no  act  by  which  third  parties  have  been  deceived  or  misled,  or 
induced  to  change  their  position  or  to  part  witli  their  property. 

The  doctrine  which  we  have  stated  is  the  only  one  which  is  consistent 
with  the  law  of  agency y  of  which  the  rules  regulating  the  acts  of  co- 
partners form  an  important  branch.  So  far  as  a  co-partner  acts  for  the 
firm  in  transactions  with  third  persons,  he  is  only  an  agent ;  and  his 
rights,  duties,  and  obligations  are  governed  by  the  same  principles  as 
those  which  are  applicable  to  ordinary  agents  who  have  no  interest  in 
common  with  their  principals.  By  the  well-settled  rule  of  the  common 
law,  the  authority  of  an  agent  is  determined  by  the  death  of  his  prin- 
cipal, whether  the  fact  of  death  is  known  or  not ;  and  no  notice  is 
necessary  to  relieve  the  estate  of  the  principal  of  all  responsibility, 
even  on  contracts  into  which  the  agent  had  entered  with  third  persons 
who  were  ignorant  of  the  death  of  the  principal.  Those  who  deal  with 
agents  are  held  to  assume  the  risk  that  his  authorit}'  may  be  terminated 
by  death  without  notice  to  them.  Story  on  Agency,  §  -ls.S  ;  Blades  v. 
Free,  9  B.  &  C.  167;  Smout  v.  Ilbery,  10  M.  &  W.  1 ;  Campanari  v. 
"Woodburn,  15  C.  B.  400.  On  the  other  hand,  if  the  agency  is  termi- 
nated by  the  act  of  the  principal,  he  is  required  to  give  notice  of  the 
revocation  of  authorit}-  in  order  to  relieve  himself  from  responsibility  ; 
because  having  held  the  agent  out  to  the  world  as  authorized  to  act  in 
his  behalf,  it  would  be  a  breach  of  good  faith  to  permit  innocent  parties 
to  deal  with  him  in  ignorance  of  a  fact  which  could  not  be  known  to 
them  without  notice.  It  would  certainly  be  a  strange  inconsistency  in 
the  law,  if  a  different  rule  was  applicable  to  an  agency  arising  out  of 
a  contract  of  co-partnership,  when  it  is  terminated  by  a  like  cause. 
The  reason  on  which  the   rule    is   founded   applies   with  equal  force, 


552  DISSOLUTION    OF    PARTNERSHIPS.  [CHAP.  VIL 

whatever  may  have  been  the  nature  of  the  authority  under  which  the 
agent  acts. 

Nor  are  we  able  to  see  any  good  reason  for  imposing  a  duty  of  giving 
notice  of  the  dissolution  of  a  firm  on  surviving  co-partners  which  is  not 
applicable  to  the  representatives  of  the  deceased  partner.  But  the 
rule  is  well  settled  that  no  notice  need  be  given  by  the  latter  to  relieve 
his  estate  from  liability  on  future  contracts.  If  it  be  said  that  the  sur- 
viving co-partners  are  in  possession  of  the  books  and  papers  of  the  firm, 
and  therefore  have  access  to  means  of  ascertaining  the  names  of  per- 
sons with  whom  the  firm  have  dealt,  which  are  not  within  the  reach  of 
the  heirs  or  representatives  of  the  deceased  co-partner,  the  answer  is, 
that  this  does  not  afford  any  ground  for  exempting  the  latter  from  the 
duty  of  giving  public  notice  of  the  dissolution  of  a  firm  by  death  by 
advertisement  in  a  gazette,  nor  of  informing  the  surviving  co-partners, 
whom  they  must  be  supposed  to  know,  of  the  fact.  It  would  seem  to 
be  quite  as  reasonable  that  notice  of  the  death  of  one  of  the  co-partners 
should  be  given  to  the  surviving  members  of  the  firm  by  the  heirs  or 
personal  representatives  of  the  deceased,  before  his  estate  is  discharged 
from  all  claim  for  contribution  or  aid  in  performing  contracts  entered 
into  by  the  surviving  co-partners  before  they  received  notice  of  his 
death,  as  that  they  should  be  required  to  give  notice  to  third  persons 
before  they  can  be  exempted  from  liability.  But  no  such  notice  is 
required.  The  co-partnership  ceases  immediately  on  the  death  of  any 
one  of  its  members  as  between  all  the  co-partners,  without  any  notice. 
This  is  an  adjudicated  point.  We  can  see  no  good  reason  for  holding 
that  it  is  not  also  terminated  as  to  third  persons. 

The  case  of  Pitcher  v.  Barrows,  17  Pick.  361,  cited  for  the  plaintiff, 
has  no  bearing  on  the  question  at  issue  in  this  case.  The  dissolution  in 
that  case  was  effected  by  the  conveyance  by  one  co-partner  of  his  share 
and  interest  in  the  firm  to  his  co-partners.  It  was  a  private  transaction, 
known  only  to  the  members  of  the  firm,  of  which  third  parties  could 
have  no  notice  until  it  was  made  public  by  those  who  were  alone  cog- 
nizant of  it.  The  true  distinction  is  not  that  no  notice  is  requisite 
when  the  dissolution  takes  place  b}T  operation  of  law,  but  only  when  it 
is  effected  by  circumstances  or  an  event  of  a  public  or  notorious  nature, 
of  which  all  men  in  the  exercise  of  due  diligence  are  required  to  take 
notice. 

The  rule  of  the  civil  law  which  was  referred  to  by  the  counsel  for  the 
plaintiff  is  essentially  different  from  that  of  the  common  law.  The 
effect  of  the  death  of  a  principal  under  the  civil  law  is  not  to  revoke 
the  authority  of  the  agent.  He  can  bind  the  estate  of  his  deceased 
principal  until  notice  of  the  death  is  given.  Following  out  this  analogy 
in  cases  of  the  death  of  a  co-partner,  the  rule  of  the  civil  law  is  that  the 
heirs  of  the  deceased  co-partner  are  liable  on  contracts  made  in  the 
name  of  the  firm  by  the  surviving  co-partners,  if  they  had  no  knowledge 
of  the  death  of  their  associate,  or  if  the  persons  with  whom  they  dealt 
were  ignorant  of  the  dissolution.     Pothier,  Soc.  §§  156,  157. 


§  1.]  BY   OPERATION   OF   LAW.  553 

It  is  not  necessary  in  the  present  case  to  determine  whether  a  sur- 
viving co-partner  who  enters  into  a  contract  in  the  name  of  the  firm 
after  its  dissolution  03-  death  can  be  held  liable  in  any  form  to  the 
person  who  in  good  faith  and  in  ignorance  of  the  fact  that  the  co-part- 
nership is  at  an  end  has  acted  and  dealt  on  the  credit  of  the  firm. 
That  is  not  the  question  which  was  raised  at  the  trial.  But  we  do 
decide,  for  the  reasons  we  have  given,  that  a  surviving  co-partner  can- 
not be  held  responsible  on  contracts  made  without  hi>  assent  or  knowl- 
edge by  another  co-partner  after  the  firm  has  been  dissolved  by  the 
death  of  one  of  its  members,  although  no  notice  of  its  dissolution  has 
been  given  to  the  person  with  whom  the  contract  was  made.  .  .  . 

New  trial  granU  d. 


BASSETT   v.    SHEPARDSOX. 

52  Mich.  3.     1883. 

The  plaintiff  as  administratrix  of  Olive  L.  Shepardson  brought  re- 
plevin against  defendant  for  a  team,  harness,  and  wagon.  These  chat- 
tels had  been  furnished  by  the  decedent  to  the  defendant  pursuant  to  a 
written  contract,  which  provided  that  they  were  "  for  the  express  use  of 
said  drug  business,  and  that  said  party  of  the  first  part  (the  decedent), 
and  said  party  of  the  second  part  are  to  share  alike  in  the  profits  of  said 
drug  business  after  all  the  expenses  have  been  paid."  Some  months 
after  this  contract  was  entered  into,  defendant  intermarried  with  de- 
cedent, and  she  died  about  six  weeks  afterward.  Defendant  refused  to 
deliver  the  property  to  plaintiff  on  the  ground  that,  as  surviving  part- 
ner in  the  drug  business,  he  had  the  right  to  retain  and  dispose  of  it. 
Under  the  rulings  of  the  trial  court,  the  jury  found  for  the  defendant- 
Plaintiff  appealed. 

Wilkinson,  Post,  &  Wilkinson,  for  appellant. 
George  W.  Coomer,  for  appellee. 

Graves,  C.  J.  .  .  .  Admitting  that  the  defendant  and  the  decedent 
were  brought  into  the  partnership  relation  by  the  first  agreement,  the 
fact  is  certain  that  the  subsequent  intermarriage  of  the  parties  worked 
an  instantaneous  dissolution  of  the  relation,  Pars.  Partn.  3d  ed.  399-462, 
Lindl.  Partn.  3d  ed.  240-241,  and  the  right  over  this  property  by  the 
defendant  ceased.  The  firm  being  dissolved,  the  privilege  to  use  and 
hold  the  decedent's  team,  which  was  nothing  more  than  incident,  ter- 
minated at  the  same  time.  There  was  no  longer  a  legal  right.  The 
subsequent  possession  was  no  more  than  a  license  which  ceased  at  her 
death.  Hence,  the  claim  that  the  defendant  was  entitled  to  continue 
in  possession  as  surviving  partner  had  no  basis.  .  .   . 

Tin  judgment  must  !><•  r>  r<  rs,<7  with  cost.1 

1  The  statement  of  facts  has  heen  abridged,  and  a  part  of  the  opinion  baa  been 
omitted. 


554  DISSOLUTION   OF   PARTNERSHIPS.  [CHAP.  VIL 


§  2.    Dissolution  by  the  Act  of  the  Parties. 

FLETCHER  v.    REED. 
131  Mass.  312.     1881. 

Morton,  J.  This  is  a  bill  in  equity  brought  to  settle  the  affairs  of 
a  partnership.  The  case  having  been  referred  to  a  master,  the  de- 
fendants filed  numerous  exceptions  to  his  report,  which  were  overruled 
by  a  single  justice  of  this  court,  and  an  appeal  taken  to  the  full 
court. 

1.  The  master  finds  that  the  co-partnership  between  the  parties  was 
formed  by  an  oral  agreement,  for  an  indefinite  time,  to  which  finding 
no  exception  is  taken.  A  partnership  for  an  indefinite  period  is  in  law 
a  partnership  at  the  will  of  the  partners,  and  either  partner  may  with- 
draw when  he  pleases,  and  dissolve  the  partnership,  if  he  acts  without 
any  fraudulent  purpose.  It  follows  that  the  master  rightly  ruled  that 
the  defendants  were  not  entitled  to  be  allowed  for  any  damages  which 
the}-  contended  were  caused  by  the  withdrawal  of  the  plaintiff  from  the 
firm.  .  .  .  Decree  for  the  plaintiff. 


SOLOMON   et  al.    v.   KIRKWOOD   et  al. 

55  Mich.  256.     1884. 

Coolet,  C.  J.  The  plaintiffs,  who  are,  in  the  city  of  Chicago, 
dealers  in  jewelry,  seek  to  charge  the  defendants,  as  partners,  upon 
a  promissory  note  for  $791.92,  bearing  date  November  9,  1882,  and 
signed  "  Hollander  &  Kirkwood."  The  note  was  given  by  the 
defendant  Hollander,  but  Kirkwood  denies  that  any  partnership 
existed  between  the  defendants  at  the  date  of  the  note. 

The  evidence  given  on  the  trial  tends  to  show  that  on  July  G,  1882, 
Hollander  &  Kirkwood  entered  into  a  written  agreement  for  a  part- 
nership for  one  year  from  the  first  day  of  the  next  ensuing  month,  in 
the  business  of  buying  and  selling  jewelry,  clocks,  watches,  etc.,  and 
in  repairing  clocks,  watches,  and  jewelry,  at  Ishpeming,  Michigan. 
Business  was  begun  under  this  agreement,  and  continued  until  the 
latter  part  of  October,  1882,  when  Kirkwood,  becoming  dissatisfied, 
locked  up  the  goods  and  excluded  Hollander  altogether  from  the 
business.  He  also  caused  notice  to  be  given  to  all  persons  with  whom 
the  firm  had  had  dealings  that  the  partnership  was  dissolved,  and  had 
the  following  inserted  in  the  local  column  of  the  paper  published  at 
Ishpeming:  "  The  co-partnership  heretofore  existing  between  Mr.  C. 
H.  Kirkwood  and  one  Hollander,  as  jewellers,  has  ceased  to  exist, 
Mr.  Kirkwood  having  purchased  the  interest  of  the  latter,"  This 
was  not  signed  by  any  one. 


§  2.]  DISSOLUTION   BY   THE   ACT   OF  THE   PAETIES. 

A  few  days  later  Hollander  went  to  Chicago,  and  there,  on  Novem- 
ber 9,  1882,  he  bought,  in  the  name  of  Hollander  &  Kirkwood,  of  the 
plaintiffs  goods  in  their  line  amounting  to  $791.92,  and  gave  to  the 

plaintiffs  therefor  the  promissory  note  now  in  suit.     The  note 
made  payable  December  15,  L882,  at  a  hank  in  Eshpeming.     When 
the  purchase  was  completed  Hollander  took  away  the  goo ds  in  his 

satehel.  The  plaintiffs  had  before  had  no  dealings  with  Hollander  .v 
Kirkwood,  but  they  had  heard  there  was  such  a  firm,  and  were  not 
aware  of  its  dissolution.  They  claim  to  have  made  the  sale  in  g 
faith,  and  in  the  belief  that  the  firm  was  still  in  existence.  On  the 
other  hand,  Kirkwood  claimed  that  Hollander  and  the  plaintiffs  had 
conspired  together  to  defraud  him  by  a  pretended  Bale  to  the  firm  of 
goods  which  the  plaintiffs  knew  Hollander  intended  to  appropriate 
exclusively  to  himself;  and  he  was  allowed  to  prove  declarations  of 
Hollander  which,  if  admissible,  would  tend  strongly  to  prove  such  a 
conspiracy. 

The  questions  principally  contested  on  the  trial  were — First, 
whether  the  acts  of  Kirkwood  amounted  to  a  dissolution  of  the  part- 
nership; second,  whether  sufficient  notice  of  dissolution  was  given; 
and  third,  whether  there  was  any  evidence  to  go  to  the  jury  of  an 
understanding  between  Hollander  and  the  plaintiffs  to  defraud  Kirk- 
wood. The  trial  judge,  in  submitting  the  case  to  the  jury,  instructed 
them  that  Kirkwood,  notwithstanding  the  writti  u  agreement,  had  a 
right  to  withdraw  from  the  partnership  at  any  time,  leaving  matters 
between  him  and  Hollander  to  be  adjusted  between  them  amicably  or 
in  the  courts;  and  for  the  purposes  of  this  case  it  made  no  difference 
whether  Kirkwood  was  right  or  wrong  in  bringing  the  partnership  to 
an  end;  if  wrong,  he  might  be  liable  to  Hollander  in  damages  for  the 
breach  of  his  contract.  Also,  that  when  partners  are  dissatisfied,  or 
they  cannot  get  along  together,  and  one  partner  withdraws,  the  part- 
nership is  then  at  an  end  as  to  the  public  and  parties  with  whom  the, 
partnership  deals,  and  neither  partner  can  make  contracts  in  the 
future  to  bind  the  partnership,  provided  the  retiring  partner  gives 
the  proper  notice.  Also,  that  if  they  should  find  from  the  evidence 
that  there  was  trouble  between  Hollander  and  Kirkwood  prior  to  the 
sale  of  the  goods  and  the  giving  of  the  note;  that  Kirkwood  informed 
Hollander,  in  substance,  that  he  would  have  no  more  dealings  with 
him  as  partner;  that  he  took  possession  of  all  the  goods  and  locked 
them  up,  and  from  that  time  they  ceased  to  do  business  —  then  the 
partnership  was  dissolved.  Further,  that  whether  sufficient  notice 
had  been  given  of  the  dissolution  was  a  question  for  the  jury.  Kirk- 
wood was  not  bound  to  publish  notice  in  any  of  the  Chicago  papers; 
he  was  only  bound  to  give  actual  notice  to  such  part  its  there  as  had 
dealt  with  the  partnership.  But  Kirkwood  was  bound  to  use  all  fair 
means  to  publish  as  widely  as  possible  the  fact  of  a  dissolution. 
Publication  in  a  newspaper  is  one  of  the  proper  means  of  giving 
notice,  but  it  is  not  absolutely  essential;  and  on   this  branch  of  thu 


556  DISSOLUTION    OF   PARTNERSHIPS.  [CHAP.  VII. 

case  the  question  for  the  jury  was  whether  Kirk  wood  gave  such  notice 
of  the  dissolution  as  under  the  circumstances  was  fair  and  reason- 
able. If  he  did,  then  he  is  not  liable  on  the  note:  if  he  did  not,  he 
would  still  continue  liable. 

The  judge  also  submitted  to  the  jury  the  question  of  fraud  in  the 
sale  of  the  goods.     The  jury  returned  a  verdict  for  the  defendants. 

I.  We  think  the  judge  committed  no  error  in  his  instructions 
respecting  the  dissolution  of  the  partnership.  The  rule  on  this  sub- 
ject is  thus  stated  in  an  early  New  York  case:  The  right  of  a  partner 
to  dissolve,  it  is  said,  "Is  a  right  inseparably  incident  to  every  part- 
nership. There  can  be  no  such  thing  as  an  indissoluble  partnership. 
Every  partner  has  an  indefeasible  right  to  dissolve  the  partnership 
as  to  all  future  contracts  by  publishing  his  own  volition  to  that  effect; 
and  after  such  publication  the  other  members  of  the  firm  have  no 
capacity  to  bind  him  by  any  contract.  Even  where  partners  covenant 
with  each  other  that  the  partnership  shall  continue  seven  years,  either 
partner  may  dissolve  it  the  next  day  by  proclaiming  his  determina- 
tion for  that  purpose;  the  only  consequence  being  that  he  thereby 
subjects  himself  to  a  claim  for  damages  for  a  breach  of  his  covenant. 
The  power  given  by  one  partner  to  another  to  make  joint  contracts 
for  them  both  is  not  only  a  revocable  power,  but  a  man  can  do  no  act 
to  divest  himself  of  the  capacity  to  revoke  it."  Skinner  v.  Dayton, 
19  Johns.  513,  538.  To  the  same  effect  are  Mason  v.  Connell,  1 
Whart.  381,  and  Slemmer's  Appeal,  58  Pa.  St.  155.  There  may  be 
cases  in  which  equity  would  enjoin  a  dissolution  for  a  time,  when  the 
circumstances  were  such  as  to  make  it  specially  injurious;  but  no 
question  of  equitable  restraint  arises  here.  When  one  partner  be- 
comes dissatisfied  there  is  commonly  no  legal  policy  to  be  subserved 
by  compelling  a  continuance  of  the  relation,  and  the  fact  that  a  con- 
tract will  be  broken  by  the  dissolution  is  no  argument  against  the 
right  to  dissolve.  Most  contracts  may  be  broken  at  pleasure,  sub- 
ject, however,  to  responsibility  in  damages.  And  that  responsibility 
would  exist  in  breaking  a  contract  of  partnership  as  in  other  cases. 

II.  The  instruction  respecting  notice  was  also  correct.  No  court 
can  determine  for  all  cases  what  shall  be  sufficient  notice  and  what 
shall  not  be:  the  question  must  necessarily  be  one  of  fact.  .  .  . 

III.  But  we  think  the  judge  erred  in  receiving  evidence  of  Hol- 
lander's admissions  or  declarations  tending  to  show  fraudulent  collu- 
sion between  him  and  the  plaintiffs.  The  declarations  of  a  conspira- 
tor may  be  evidence  against  his  associates  after  the  conspiracy  is  made 
out ;  but  to  receive  them  as  proof  of  the  conspiracy  would  put  every 
man  at  the  mercy  of  rogues.  We  find  in  this  case  no  evidence  of  the 
conspiracy  except  in  the  statements  of  Hollander ;  and  those  having 
been  erroneously  received  there  was  nothing  on  that  branch  of  the 
case  to  submit  to  the  jury. 

For  this  error  there  must  be  a  new  trial. 


§  3.]  DISSOLUTION    BY   THE    COUKT.  557 


§  3.     Dissolution  by  the  Court. 

EOSENSTEIN   ft  al.    v.    BURNS  et  al. 
41  Fed.  841.     1882. 

Nelson,  J.  This  bill  is  brought  to  procure  a  dissolution  and  wind- 
ing up  of  the  affairs  of  a  partnership  entered  into  between  parties 
under  a  written  agreement  for  the  canning  of  tish  ami  the  manufacture 
of  pomace  and  fish  guano,  and  to  continue  for  the  term  of  live  years 
from  July  1,  1881.  The  co-partnership  agreement  provides  that  the 
plaintiffs  shall  furnish  the  capital  with  which  to  carry  on  the  busi- 
ness, aud  shall  furnish,  also,  all  materials  at  cost;  that  the  de- 
fendants shall  have  charge  of  and  superintend  the  manufacturing 
department  at  the  factory  in  Gloucester,  keep  correct  books,  and 
submit  weekly  statements  of  the  business  to  the  plaintiffs,  make  good 
and  marketable  goods,  at  the  lowest  possible  cost,  in  such  quantities 
as  the  plaintiffs  should  deem  advisable;  and  that  all  goods  made. 
except  in  certaiu  specified  cases,  should  be  shipped  to  the  plaintiffs, 
and  be  sold  by  them  in  New  York.  The  grounds  upon  which  the 
dissolution  is  asked  for  are  the  wilful  and  persistent  neglect  of  the 
defendants  to  comply  with  the  terms  of  the  written  agreement,  that 
the  business  is  being  conducted  at  a  great  loss,  and  that  the  plaintiffs 
were  induced  to  enter  into  the  partnership,  and  contribute  their  capital 
to  the  concern,  through  certain  false  aud  fraudulent  representations  of 
the  defendants  as  to  the  nature  and  extent  of  the  business.  The  defend- 
ants demur  to  the  bill  for  multifariousness  and  for  want  of  equity. 

Both  grounds  of  demurrer  must  be  overruled.  The  bill  states  a 
plain  case  for  equitable  relief.  A  partner  is  under  no  obligation  to 
continue  a  member  of  a  partnership  when  his  co-partner  persistently 
and  wilfully  violates  the  essential  conditions  upon  which  the  contracl 
of  the  partnership  rests.  He  is  not  under  the  necessity  of  remaining 
in  the  firm,  and  resorting  to  his  action  at  law  upon  the  partnership 
contract  for  redress.  He  is  at  liberty  to  withdraw  himself  and  his 
capital  from  the  concern  whenever  it  becomes  reasonably  certain  that 
the  business  can  no  longer  be  carried  on  at  a  profit,  whether  through 
the  misconduct  of  his  co-partner  or  from  a  failure  of  the  business 
itself.  So,  if  he  has  been  induced  to  enter  into  a  partnership  con- 
tract through  the  deceit  of  his  co-partner,  he  may  withdraw  whenever 
the  fraud  practised  upon  him  become  known.  In  neither  case  is  he 
required  to  continue  in  the  firm  until  the  partnership  expires  by  limi- 
tation of  time,  but  is  at  liberty  at  once  to  ask  for  a  dissolution  ami  a 
winding  up  of  the  affairs  of  the  partnership. 

The  bill  is  not  multifarious.  It  has  a  simple  purpose,  the  dissolution 
and  winding  up  of  the  concern.  Though  several  grounds  for  relief  are 
stated,  yet  they  arise  out  of  the  same  series  of  transactions,  relate  to 
the  same  subject  matter,  and  can  be  conveniently  settled  in  one  suit. 
They  are  all  properly  joined  in  one  bill.  Demurrer  overruled. 


558  DISSOLUTION    OF    PARTNERSHIPS.  [CHAP.  VII 

JURGENS   v.    ITTMANN  et  al. 

47  La.  Ann.  3G7:  16  So.  952.     1895. 

Nicholls,  G.  J.  Plaintiff  alleges  that  the  commercial  firm  of  G. 
B.  Ittmann,  Jacob  Ittmann,  and  the  succession  of  G.  B.  Ittmann,  is 
indebted  to  him  in  the  sum  of  $2,031.50,  with  legal  interest  from 
judicial  demand,  and  he  prays  for  judgment  against  it  in  solido  for 
that  amount.  The  demand  is  based  upon  the  allegation  that  the 
commercial  firm  of  G.  B.  Ittmann  was  domiciled  and  doing  business 
in  New  Orleans  from  1881  down  to  the  time  it  was  dissolved  by  the 
interdiction  of  George  B.  Ittmann,  in  the  summer  of  1893,  and 
during  that  time  it  was  composed  of  Jacob  Ittmann  and  George  B. 
Ittmann ;  that  plaintiff  sold  and  delivered  to  said  firm  goods,  wares, 
and  merchandise  at  the  dates,  in  the  quantities  and  descriptions,  and 
at  the  prices,  set  forth  in  an  itemized  statement  and  bill  annexed  to 
the  petition,  subject  to  certain  credits,  which,  having  been  made,  left 
as  still  due  the  amount  sued  for;  that  since  the  dissolution  of  the 
firm  George  B.  Ittmann  had  died,  and  his  succession  was  represented 
by  his  testamentary  executrix.  By  the  bill  annexed  it  appears  that 
the  sales  comprised  in  the  statement  began  on  January  19,  1892,  aud 
closed  on  the  23d  of  May,  1893. 

The  testamentary  executrix  filed  an  answer,  pleading,  after  the 
general  issue,  that  during  the  whole  period  covered  by  the  dates  of 
the  alleged  indebtedness  of  the  defendant  to  plaintiff  the  said  defend- 
ant, George  B.  Ittmann,  was  notoriously  insane,  to  the  knowledge  of 
the  plaintiff  and  his  agents,  and  was  incapable  of  contracting  or  of 
binding  himself  in  any  manner  whatsoever;  that  said  notorious 
insanity  was  patent  to  all  coming  in  contact  with  him,  and  was  of 
such  a  nature  that  no  one  dealing  with  him  could  be  deceived  as  to 
his  condition;  that  said  insanity  was  continuous  from  the  month  of 
October,  1892,  until  his  interdiction;  that  said  insanity  was  the 
actual  cause  of  his  interdiction  by  the  Civil  District  Court  for  the 
parish  of  Orleans  by  judgment  pronounced  July  12,  1893;  that  co- 
defendant  Jacob  Ittmann  had  exclusive  charge  of  the  business  with 
which  the  said  alleged  indebtedness  is  claimed  to  have  arisen,  and 
that  George  B.  Ittmann  was  without  capacity  to  bind  himself  in  con- 
nection therewith,  and  that  he  was  not  chargeable  therewith,  and 
neither  is  his  succession  to  be  held.  The  defendant,  in  view  of  the 
premises,  prayed  that  the  suit,  in  so  far  as  it  relates  to  the  succes- 
sion of  George  B.  Ittmann,  be  dismissed,  and  plaintiff's  demand 
rejected.  The  District  Court  rendered  judgment  in  favor  of  the  plain- 
tiff against  the  commercial  firm  of  G.  B.  Ittmann  and  Jacob  Ittmann 
and  the  succession  of  George  B.  Ittmann  in  solido,  for  the  sum  of 
$2,031.50,  with  legal  interest  from  January  9,  1894,  until  paid.  The 
testamentary  executrix  of  the  succession  of  George  B.  Ittmann  has 
appealed. 


§  3. J  DISSOLUTION    BY    THE   COURT. 

We  find  in  the  transcript  the  following  agreement:  "It  i>  agreed 
between  counsel  that  the  only  issue  in  this  cause  is  the  notorious 
insanity  vel  -non  of  George  B.  Ittmann,  and  the  claim  made  that  bis 
succession  is  not  liable  for  the  goods  sold  by  reason  thereof.  The 
other  issues  are  taken  out  of  controversy  by  the  admissions  that  the 
partnership  existed  ascharged;  that  the  goods  were  sold  and  delivered 
to  the  firm  as  charged;  that  the  prices  were  just  and  reasonable;  that 
the  goods  were  used  and  consumed  in  the  business  of  the  firm;  and 
that  the  price  thereof  has  never  been  paid.  .  .  .  [Signed]  W.  S. 
Benedict,  H.  C.  Cage,  Attorneys  for  Plaintiff.  .  .  .  Without  waiv- 
ing any  legal  deductions  from  the  evidence  adduced,  above  is  agreed 
to.  [Signed]  James  J.  McLaughlin,  Attorney  for  Succ.  of  George 
B.  Ittmann." 

The  meaning  of  the  reservation  made  by  the  attorney  of  the  suc- 
cession of  Ittmann  is  explained  by  the  position  taken  by  him  that 
the  commercial  partnership  of  "  G.  B.  Ittmann"  is,  so  far  as  it  was 
based  on  articles  of  partnership,  terminated,  and  expired  in  1882, 
and  that  from  that  time  forward  it  existed  only  from  day  to  day  by 
consent;  that,  being  dependent  upon  its  existence  for  consent,  it 
necessarily  could  not  endure  beyond  the  time  when  the  parties  to  it 
could  consent  to  its  continuance;  that,  therefore,  as  soon  as  either 
partner  became  incapable  of  consenting  to  its  continuance,  the  part- 
nership ended  ipso  facto,  upon  the  other  party  being  informed  of  his 
partner's  incapacity.  Counsel  cite  in  support  of  this  proposition 
a  citation  from  17  Am.  &  Eng.  Enc.  Law,  1102,  1103,  to  the  effect 
that  "  the  permanent  insanity  of  a  partner  is  a  ground  for  decreeing 
a  dissolution;"  and,  "  if  it  is  a  partnership  at  will,  .  .  .  the  date  of 
notice  is  the  date  of  dissolution."  On  reference  to  the  volume  cited, 
we  find  Mellersh  v.  Keen,  27  Beav.  236,  and  Robertson  v.  Lockie, 
15  Sim.  285,  10  Jur.  533,  quoted  as  the  authorities  in  support  of  the 
statement  made.  We  have  been  unable  to  find  the  authorities  them- 
selves, but  the  citation  itself  does  not  declare  that  a  partnership  at 
will  ends  ipso  facto,  as  contended  for  by  counsel,  by  the  insanity  of 
one  of  the  partners,  but  refers  to  a  notice  to  be  given.  This  notice 
evidently  must  have  conveyed  the  information  thai  from  that  time 
forward  the  partnership  would  be  held  to  be  terminated.  We  think 
the  defendant  is  mistaken  in  making  a  continuance  of  the  relations 
between  the  Ittmanns  dependent  upon  their  consent  from  day  to  day 
to  such  continuance,  and  in  making  them  terminate,  ipso  facto,  on 
any  particular  day,  when  such  consent  should  not  have  been  also 
affirmatively  given,  or  legally  inferred  to  have  been  given,  on  such 
particular  day.  We  are  of  the  opinion  that  the  course  of  conduct 
pursued  for  many  years  between  the  parties  evidences  a  reciprocal 
consent  to  the  creation,  and  the  actual  creation,  of  a  "  partnership" 
between  them.  True,  no  writing  was  passed  showing  its  precise 
terms,  or  fixing  any  definite  time  for  its  duration;  but  a  u  partner- 
ship" was  created  and  existed  none  the  less,  and  the  parties  were 


560  DISSOLUTION    OF   PARTNERSHIPS.  [CHAP.  VII. 

bound,  inter  se  and  to  third  persons,  as  if  such  writing  had  been  exe- 
cuted and  the  rules  governing  "partnerships  at  will  "  would  control. 
The  "  partnership  "  was  one  not  resting  on  consent  from  day  to  day, 
and  by  force  of  such  daily  reiterated  consent,  but  a  continuing  part- 
nership, subject  to  termination  only  after  notice,  and  under  the  rules 
of  law  relating  to  the  dissolution  of  partnerships.  Until  formally  or 
legally  dissolved,  it  continued  as  a  partnership.  Alba  v.  Moriarty, 
36  La.  Ann.  680. 

It  is  not  alleged  that  any  notice  has  ever  been  given  either  by  the 
curator  of  George  B.  Ittmann,  his  presumptive  heir,  or  his  testamen- 
tary executrix  to  Jacob  Ittmann,  or  by  the  latter  to  the  curator,  execu- 
trix, or  heir,  or  by  either  to  the  public  generally,  or  the  customers  of 
the  firm.  Matters  were  permitted  by  all  parties  in  interest  to  follow 
the  old  course.  Purchases  were  made  and  bills  were  paid  as  they 
always  were,  and  no  one  was  placed  upon  his  guard.  It  is  not 
claimed  that  the  sales  which  form  the  basis  of  the  account  sued  on 
were  effected  by  George  Ittmann,  a  man  of  weakened  mind,  and  that 
they  are  open  in  any  way  to  objections  as  to  fairness  or  full  con- 
sideration. On  the  contrary,  defendant  asserts  that  the  business  was 
conducted  exclusively  by  Jacob  Ittmann;  that  the  prices  charged  were 
what  the  goods  furnished  were  justly  and  reasonably  worth,  and  that 
they  were  used  in  the  business.  The  case  comes  to  us  freed  from  all 
complaint  of  fraud,  deceit,  overreaching,  or  injury  to  George  B. 
Ittmann.  We  think  it  very  clear  that  if  the  business  conducted  at 
the  "  Jewel  of  the  South,"  in  the  interval  between  the  time  when  it  is 
claimed  that  George  B.  Ittmann  became  so  mentally  incapacitated  as 
to  render  him  incapable  of  entering  into  a  contract  and  the  period  of 
his  interdiction,  was  prosperous,  — and  we  have  no  reason  to  believe 
that  it  was  not,  —  the  succession  of  George  B.  Ittmann  is  entitled  to 
share  in  the  profits,  for  Jacob  Ittmann  is  in  no  position  to  contest 
that  right.  His  status  as  a  partner  has  been  fixed.  Neither  the 
curator  appointed  to  represent  the  interdict  during  his  life,  nor  his 
presumptive  heir,  nor  his  testamentary  executrix  appear  to  have 
repudiated  the  idea  of  a  continuance  of  the  partnership,  or  to  have 
done  anything  by  which  the  succession  has  been  or  will  be  cut  off 
from  asserting  rights  as  under  a  continuing  firm.  For  aught  we  know 
to  the  contrary,  it  may,  at  this  moment,  be  asserting  such  a  claim. 
There  is  nothing  iu  the  pleadings  going  to  negative  its  right  so  to 
do.  The  testamentary  executrix  of  George  B.  Ittmann  is  the  only 
child  of  the  deceased.  As  his  relative  and  presumptive  heir,  she 
had  sufficient  legal  interest  to  have  protected  his  rights,  if  they  were 
jeopardized  by  his  mental  condition  during  the  time  stated.  Civ. 
Code,  Arts.  390,  880.  She  took  no  steps  in  that  direction  until 
almost  the  last  moment,  nor  did  she  take  any  steps  leading  to  the 
protection  of  third  parties,  and,  if  loss  results,  it  should  rather  fall 
on  her  than  on  creditors  who  dealt  with  her  father  in  good  faith,  and 
in  ignorance  of  the  alleged  existing  situation.     Id.  Arts.  3029,  3034. 


§  3.]  DISSOLUTION    BY    THE    COURT.  501 

Equity  and  justice  require  that  this  should  have  been  done.  AW-  are 
of  the  opiuiou  that  quoad  the  customers  of  the  commercial  firm  of 
George  B.  Ittmauu  the  partnership  must  be  held  to  have  continued  to 
exist,  certainly  up  to  the  date  of  the  filing  of  the  petition  for  inter- 
diction, —  adate  winch  tixes  plaintiffs  dealings  as  having  1  ecu  made 
with  the  partnership,  and  binding  upon  both  partners. 

It  is  no  more  the  duty  of  customers  of  a  partnership  whose  dura- 
tion is  at  the  will  of  the  partners,  at  their  peril,  to  keep  advised  as 
to  the  mental  condition  of  each  of  the  members  of  the  partnership, 
than  it  is  for  thoseof  a  partnership  with  a  fixed  period  of  life.  They 
have  the  right  to  assume,  until  notified  to  the  contrary  by  the  parties 
in  interest,  that  the  partnership  continues.  Article  -J>7<'>  of  our  Civil 
Code,  under  the  heading  of  "  The  Different  Manners  in  which  Part- 
nership Ends,"  assigns,  among  other  causes:  "(1)  The  expiration  of 
the  time  for  which  such  partnership  was  entered  into.  ...  (3)  The 
death  of  one  of  the  partners,  or  by  his  interdiction.  .  .  .  (5)  The 
will  of  all  the  parties  legally  expressed,  or  by  the  will  of  any  of  them, 
founded  on  a  legal  cause,  and  expressed  in  the  manner  required  by 
law."  Article  2<ss;J  declares  that  the  interdiction  of  one  of  the  part- 
ners or  his  bankruptcy  has,  as  to  the  dissolution  of  the  partnership, 
the  same  effect  as  the  death  of  one  of  the  partners.  Article  2884  is 
to  the  effect  "  That  if  the  partnership  has  been  contracted  without  any 
limitation  of  time  one  of  the  partners  may  dissolve  the  partnership 
by  notifying  to  his  partners  that  he  does  not  intend  to  remain  any 
longer  in  the  partnership,  provided,  nevertheless,  the  renunciation  to 
the  partnership  be  made  bona  fide,  and  it  does  not  take  place  unseason- 
ably;"  and  Article  2888,  "  That  there  is  just  cause  for  a  partner  to 
dissolve  the  partnership  before  the  appointed  time,  when  one  or  more 
of  the  partners  fail  in  their  obligations,  or  when  an  habitual  infirmity 
prevents  him  from  devoting  himself  to  the  affairs  of  his  partnership 
which  require  his  presence  or  his  personal  attendance." 

Assuming  the  existence  of  a  cause  sufficient  to  have  been  invoked 
as  a  ground  for  ending  the  partnership,  neither  of  the  parties,  nor 
others  acting  for  them,  availed  themselves  of  it,  or  gave  the  notice 
required  by  Article  2884,  or  notice  to  customers  of  the  linn.  If  the 
partnership  be  held  to  have  continued,  there  was  no  necessity  for  the 
assent  or  consent  of  the  different  partners  to  the  different  partnership 
contracts.  The  partnership  being  distinct  from  the  individuals  who 
composed  it,  the  consent  of  any  one  of  the  partners  is  the  consent  of 
the  firm.  Jacob  Ittmann's  capacity  to  contract  being  undoubted,  his 
consent  was  sufficient  to  give  validity  to  firm  contracts,  independently 
of  the  consent  of  George  Ittmann.  In  Raymond  v.  Vaughn,  128  111. 
256,  the  Supreme  Court  of  Illinois  held  (even  when  one  member  was 
adjudged  insane)  that  when  his  partner,  without  notice  to  third  per- 
sons, continues  to  carry  on  the  business  as  before,  there  is  no  disso- 
lution of  the  partnership,  ami  the  managing  partner  must  account  to 
the  insane  partner  for  his  share  of  the  profits.      If  the  succession  of 

86 


562  DISSOLUTION    OF   PARTNERSHIPS.  [CHAP.  VII. 

George  B.  Ittmann  be  in  a  position  quoad  Jacob  Ittmann  to  claim 
from  him  up  to  the  date  of  the  interdiction  a  share  of  the  profits  (and 
as  we  have  said,  there  is  nothing  to  show  that  it  does  not  occupy 
such  a  position),  it  could  scarcely  expect  to  share  benefits  and  escape 
responsibilities.  In  addition  to  what  we  have  already  said,  we  may 
say  that  there  is  nothing  in  the  record  which  would  lead  us  to  believe 
that  the  plaintiff  in  this  suit  had  any  knowledge  during  the  period 
covered  by  the  transactions,  declared  on,  of  the  alleged  mental 
incapacity  of  George  B.  Ittmann.  ...  We  are  of  the  opinion  that 
the  judgment  appealed  from  is  correct,  and  it  is  hereby  affirmed. 


CHAPTER   VIII. 

accounting  and  distribution. 

§  1.     Rules  of  Distribution-. 

GROTH   et  al.    v.    KERSTING  et  al. 

23  Colo.  213  :  47  Pac.  393.     1S96. 

Hatt,  C.  J.  The  defendants  in  error,  Fritz  Kersting  and  August 
Wilmsmeier,  commenced  suit  against  plaintiffs  in  error,  Louis  Groth 
and  Ferdinand  B.  Becker.  This  action  was  numbered  13,115  in  the 
District  Court.  The  complaint  in  the  suit,  as  originally  instituted, 
contained  two  causes  of  action.  The  first,  which  was  directed 
against  the  defendant  Groth  alone,  is  an  action  by  two  partners 
against  the  third  member  of  the  firm  of  Keating  &  Co.  for  an 
accounting.  The  second  cause  of  action  was  against  both  of  the 
defendants  upon  an  account  stated  for  brick  bought.  At  the  time 
of  the  institution  of  this  suit,  an  attachment  was  issued  in  aid 
thereof,  and  sustained  upon  final  hearing.  To  the  original  com- 
plaint a  demurrer  was  interposed,  and  sustained.  Thereafter  the 
complaint  was  amended,  and  the  first  cause  dropped  therefrom.  This 
first  cause  of  action  was  subsequently  made  the  basis  of  an  indepen- 
dent suit,  designated  in  the  District  Court  as  No.  13,900.  After  the 
issues  were  joined  in  the  two  causes,  they  were  consolidated,  and 
referred  to  I.  E.  Barnum,  as  referee,  to  take  testimony,  and  report 
findings.  As  a  result  of  the  proceedings  had  before  the  referee,  the 
plaintiffs  in  both  cases  were  successful.  Exceptions  to  the  report 
were  in  due  time  filed,  and  overruled  by  the  court.  In  accordance 
with  the  findings  of  the  referee,  the  District  Court  rendered  judgment 
for  the  plaintiffs  for  the  sum  of  $8,751.54,  against  both  defendants, 
and  an  individual  judgment  against  Groth  alone  for  the  sum  of 
§1,936.70.  From  this  judgment  a  writ  of  error  was  sued  out  from 
the  Court  of  Appeals,  in  which  court  the  judgment  of  the  District 
Court  was  in  all  things  affirmed.  See  Groth  v.  Kersting,  4  Colo.  App. 
395.     From  this  latter  judgment  the  cause  is  brought  lure  by  error. 

It  is  claimed  that  the  referee's  report,  which  formed  the  basis  of 
the  decree  in  the  District  Court,  as  well  as  that  of  the  Court  of 
Appeals,  is  manifestly  erroneous,  in  that  it  fails  to  provide  for  the 
repayment  to  each  partner  of  his  contribution  to  the  business. 
Undoubtedly,  the  usual  order  of  distribution  of  the  assets  of  a  co- 
partnership upon  dissolution  is  as  stated  by  counsel,  to  wit:  i  l  i  Pay- 
ment of  the  debts  or  liabilities  due  third  persons;  (2)  repaying  to 


564  ACCOUNTING   AND   DISTRIBUTION.  [CHAP.  VIIL 

each  partner  his  advances;  (3)  repaying  to  each  partner  his  capital; 
(4)  division  of  the  balance  as  profits.  While  this  is  the  usual  order, 
it  may  be  altered  by  agreement  of  the  parties,  and  in  this  case  we 
think,  from  the  evidence  and  the  conditions  under  which  the  co-part- 
nership was  formed  and  the  firm  business  transacted,  the  referee  cor- 
rectly determined  that  the  amount  contributed  by  the  several  partners 
was  to  be  considered  as  assets  of  the  firm,  and  to  be  distributed 
accordingly. 

In  accordance  with  the  terms  of  the  agreement,  Kersting  and 
Wilmsmeier  were  to  devote  their  time  and  attention  to  the  joint 
enterprise,  and  contribute  only  $3,650.50,  while  Groth  was  to  contri- 
bute $8,000,  although  he  had  but  a  one-third  interest  in  the  business. 
This  disproportionate  amount  was,  we  think,  to  be  put  in  by  Groth 
against  the  lease  theretofore  secured  by  Kersting  &  Co.,  and  as  an 
offset  to  their  labor  and  services  in  the  management  of  the  business, 
with  the  further  benefit  to  Groth  resulting  from  an  agreement  to  fur- 
nish brick  for  his  building  contracts  at  a  lower  price  than  they  could 
be  purchased  for  in  the  market.  So,  we  conclude  that  it  was  not 
error  for  the  referee  to  treat  these  several  items  as  assets  of  the  co- 
partnership, to  be  divided  between  the  partners  according  to  their 
interest  in  the  co-partnership,  without  regard  to  the  ratio  of  the 
original  contributions. 

Among  the  credits  alloAved  Kersting  &  Co.  is  one  for  hauling 
brick.  It  is  claimed  that  in  this  there  is  error  because  the  brick  were 
hauled  by  teams  belonging  to  the  co-partnership.  "We  do  not  so 
understand  the  evidence.  On  the  contrary,  the  referee  gave  credit 
only  for  the  money  paid  to  others  for  hauling.  Mr.  Kerstiug  says: 
"Brick  hauling,  $1,242.40;  that  is,  teams  which  hauled  bricks,  and 
we  paid  them  for  hauling."  In  the  complaint  it  is  alleged  that  the 
profits  of  the  brick  business  were  $9,731.68,  for  which  the  firm  of 
Kersting  &  Co.  is  accountable,  while  the  net  profits  of  the  business, 
as  found  by  the  referee,  were  only  $7,828.60.  It  is  urged  that  this 
is  in  violation  of  the  rule  binding  parties  by  the  allegations  of  their 
pleadings.  This  is  not  so,  for  the  reason  that  this  allegation  of  the 
complaint  is  denied  by  the  answer,  and  evidence  was  taken  upon  the 
issue  thus  made.  The  referee  found  that  the  price  charged  for  brick 
by  Kersting  &  Co.  was  too  high,  and  reduced  the  amount,  thereby 
reducing  the  firm  profits  correspondingly.  There  was  no  error  in 
this,  but  Kersting  &  Co.  were  improperly  allowed,  as  part  of  the 
expenses  of  the  business  paid  by  them,  the  sum  of  $3,650.50,  this 
being  the  value  of  the  lease,  horse,  wagons,  tools,  brick,  etc.,  con- 
tributed to  the  firm  by  Kersting  and  Wilmsmeier  at  the  "inception  of 
the  enterprise.  The  contribution  to  the  firm,  under  the  findings  of 
the  referee,  became  joint  property  or  firm  assets;  and  neither  part}7 
should  have  been  given  credit  for  either  of  the  amounts  in  the  final 
settlement,  except  as  the  same  may  result  from  a  division  of  the  firm 
assets.     The  referee  acted  upon  this  rule  so  far  as  Groth  is  concerned, 


§  1-]  RULES    OF   DISTRIBUTION. 

but  adopted  a  different  rule  as  to  Kersting  and  Wilmsmeier.  This 
was  uut  called  to  the  attention  of  the  court  in  any  of  the  briefs  Bled 

or  oral  arguments  heard  prior  to  writing  the  first  opinion,  but  was 
first  mentioned  in  the  petition  for  reheating;  but  the  error  is  mani- 
fest, and  the  correction  will  now  be  made.  "With  this  change  the 
account  may  be  stated  as  follows :  — 

Kersting  &  Wilmsmeier  in  Account  with  Kersting  &  Co. 

To  collections  for  firm '  ,-  c>i 

By  expenses  paid  for  the  firm 63,716  :i7 

Balance  due $5,uS9  27 

Firm  Assets. 

Due  from  Groth  &  Becker  for  brick  bought    .     .  .  88,751  54 

Due  from  Kersting  &  Wilmsmeier,  as  above  .     .  .  5,089  27 

Due  from  Louis  Groth  for  capital  not  contributed  .  8,000  00 

Total 121,840  SI 

Of  this  amount  Kersting  &  Wilmsmeier  are  entitled 

to  two-thirds  .     .  . 814,560  M 

Less  their  indebtedness  to  the  firm,  as  above       .     .         5,089  '21 

Balance  due  Kersting  &  Wilmsmeier  .     .     .     .       SO.  171  L'7 

Kersting  and  Wilmsmeier  are  entitled  to  judgment  for  the  amount 
due  them,  viz.,  89,471.27. 

It  is  now  conceded  that  Groth  &  Becker  and  Louis  Groth  may 
properly  be  considered  as  one  and  the  same  party  so  far  as  the 
settlement  of  this  business  is  concerned.  We  will  therefore  not 
interfere  with  the  judgment  rendered  against  Groth  &  Becker  for 
$8,751.54,  but  will  correct  the  error  b}T  reducing  the  judgment  against 
Groth  from  $1,936.70  to  S719.73.  The  judgment  of  the  Court  of 
Appeals  against  Groth  &  Becker  will  therefore  be  affirmed,  and  the 
judgment  against  Groth  reduced  to  $719.73;  the  costs  in  this  court 
to  be  equally  divided  between  the  parties.  The  cause  will  be  re- 
manded to  the  Court  of  Appeals  for  further  proceedings  in  accordance 
with  this  opinion. 

Judgment  modifii  d. 


LESERMAN   v.    BERNHEIMER  et  al. 

113  N.  Y.  39.     1889. 

Daxfortit,  J.     The  capital  of  the  firm  was  $225,000,  to  which  each 

partner  contributed  $75,000 der  an  agreement  thai  each  partner 

shonld  share  the  profits  and  bear  the  losses  equally  with  the  others, 

viz.,  one-third    each.      No    time  was    fixed    for    its    continuance,    and 
November  25,  1873,  Leserman  elected  to  have  the  business  wound  up, 


566  ACCOUNTING   AND   DISTRIBUTION.  [CHAP.  VIIL 

and  by  notice  to  his  partners  required  that  an  account  should  be  taken 
for  that  purpose.  This  was  done.  An  account  of  stock  was  taken 
and  balance  struck  as  of  December  31  of  that  year,  at  which  time  the 
referee  finds:  "It  was  distinctly  known  and  understood  by  all  the 
parties  that  the  partnership  was  to  be  dissolved  and  wound  up  in 
pursuance  of  the  notice  already  given  by  Leserman."  It  was  not, 
however,  formally  dissolved  until  March  13,  1874.  (After  setting 
out  the  agreement  of  dissolution  by  which  Isaac  Bernheimer  was 
named  as  the  liquidating  partner,  the  learned  judge  proceeded:) 

It  was  found  that  Leserman  had  drawn  out  of  his  original  capital 
$10,499.97;  that  Bernheimer's  had  increased  $56,621.39;  while  Gold- 
smith had  drawn  out  the  whole  of  his  and  also  owed  the  firm  8897.99. 
After  paying  all  the  liabilities  of  the  firm,  there  remained,  according 
to  the  report,  $128,920  in  the  hands  of  the  liquidating  partner. 
This  sum  is  carried  to  the  capital  account,  and  whether  its  disposi- 
tion by  the  referee  is  correct,  presents  the  first  important  inquiry. 
The  interest  of  each  partner  in  the  partnership  property  is  his  share 
in  the  surplus  after  the  partnership  accounts  are  settled  and  all  just 
claims  satisfied.  In  this  case,  by  the  terms  of  the  partnership,  the 
partners  were  to  contribute  equally  and  divide  the  profits  and  share 
losses  equally  from  the  beginning  of  the  partnership  to  its  dissolu- 
tion. There  is  no  evidence  which  requires,  or  would  permit,  any  find- 
ing that  this  arrangement  had  been  changed,  nor  are  we  referred  to 
such  finding.  It  would  seem  to  follow  that  the  division  of  profits  and 
charge  of  losses  should  be  in  the  proportion  of  one-third  of  each  to 
each  partner.  To  carry  out  that  mode  of  adjustment  as  the  one  pro- 
vided by  the  agreement  of  the  parties,  the  advances  made  by  either 
partner  beyond  the  capital  called  for  by  that  agreement  should  be 
treated  as  a  debt  due  from  the  firm  and  paid  out  of  the  surplus  before 
any  division  is  made  upon  the  partnership  capital. 

If  that  advance  was  not  in  strictness  to  be  regarded  as  a  debt  dur- 
ing the  existence  of  the  firm,  nor  until  the  debts  of  the  firm  to  third 
persons  were  satisfied,  it  came  into  that  relation  the  moment  those 
debts  were  paid,  and  the  concern,  as  regards  its  business  and  its  out- 
side obligations,  wound  up.  This  is  an  equitable  disposition  of  the 
matter,  for,  otherwise,  the  larger  the  advance  made  for  the  firm 
the  greater  would  be  the  share  of  losses,  or,  if  profits,  the  greater  the 
share  of  profits  accruing  to  the  partner  making  the  advance,  in  either 
case  a  result  entirely  opposed  to  the  actual  agreement  of  the  parties, 
which  exacted  equality  in  both  respects.  Nor  is  the  rule  opposed  to 
the  authorities  cited  by  the  respondent. 

Story,  in  speaking  of  the  rights  of  partners,  says  (348-348  a) :  "  In 
taking  the  account  between  them  upon  an  ordinary  dissolution,  each 
becomes  chargeable  with  all  the  debts  and  claims  which  he  owes  to 
the  partnership,  and  if  any  partner  has  made  advances  to  the  firm, 
and  others  have  received  advances  from  it,  these  do  not  constitute 
debts  until  the  concern  is  wound  up,"  and  Richardson  v.  Bank  of 


§  1-]  RULES    OF   DISTRIBUTION.  507 

England,  4  Myl.  &  Cr.  165,  is  to  the  same  effect  That  was  a  suit 
by  the  representatives  of  one  partner,  deceased,  to  have  a  general 
account  taken  of  all  the  partnership  dealings  and  transactions,  and 
to  have  its  affairs  finally  wound  up  and  closed.  The  situation  of  the 
various  partners  as  to  advances  and  overdrafts  was  much  like  the 
relative  position  of  the  partners  in  the  case  before  as.  One  of 
the  defendant's  co-partners  had  overdrawn,  and  upon  motion  that 
he  be  required  to  pay  back  the  sum  in  question  it  was  denied,  upon 
the  ground  that  until  the  accounts  of  the  linn  had  been  settled,  and 
the  joint  debts  paid,  what  may  have  been  advanced  by  one  partner  or 
received  by  another  can  only  constitute  items  in  the  account  From 
both  authorities  it  is  clear  that,  alter  the  amount  of  profit  and  loss 
had  been  ascertained,  the  partner  advancing  might  have  his  remedy, 
and  the  party  who  had  overdrawn  be  subject  to  liability.  Before 
dissolution  and  an  accounting,  the  one  who  had  advanced  money 
could  not  compel  payment  by  suit  against  the  firm,  for  he  was  one  of 
the  firm  and  so  one  of  the  parties  owing  the  money.  After  dissolu- 
tion, and  before  account  taken  and  payment  of  debts  due  to  others, 
he  could  not  enforce  payment,  for  the  dissolution  worked  no  change 
in  his  position.  But  after  these  events  happened,  lie  became  entitled 
to  be  paid  the  sum  advanced  before  the  moneys  contributed  to  the 
firm  were  returned  to  the  contributors. 

Bernheimer  was  a  contributor  to  capital:  he  was  also  in  advance 
of  that  contribution,  and  the  sum  advanced  must  be  repaid  before 
the  surplus  can  be  ascertained;  and  from  that  surplus  alone  can 
there  be  a  contribution;  then  to  each  partner  equally;  and  if  a  loss  is 
incurred,  its  ratio  must  be  ascertained  as  originally  agreed  by  the 
parties.  The  learned  referee  has  not  dealt  with  the  appellant  Bern- 
heimer in  accordance  with  these  rules.  He  gives  him  one-third 
only  of  the  surplus  by  reason  of  his  original  capital,  and  in  ac- 
cordance with  the  same  theory  the  learned  referee  gives  one  other 
third  of  the  surplus  to  Leserman,  and  the  remaining  third  to  Gold- 
smith. This  method  would  be  well  enough  if  the  surplus  were 
sufficient  to  pay  all.  But  it  is  not,  and,  moreover,  the  advance 
made  by  Bernheimer  is  left  entirely  unpaid.  To  cover  it,  there- 
fore, the  sum  advanced  is  divided  into  three  parts,  and  Bernheimer 
is  given  a  judgment  against  Leserman  for  $18,873.72,  or  one- 
third;  a  judgment  against  Goldsmith  for  a  like  amount,  or  one-third, 
leaving  him  to  bear  a  certain  loss  as  to  the  remaining  one-third, 
and  imposing  on  him  the  risks  of  collection  as  against  Goldsmith. 
We  think  this  result  is  inequitable,  and  not  required  by  any  ride  or 
principle  of  law. 

The  sum  advanced  by  Bernheimer  over  his  $75,000  should  be  first 
paid  from  the  partnership  surplus,  and  the  residue  divided  among  the 
partners  according  to  the  partnership  agreement.  Of  course,  Gold- 
smith, having  drawn  out  his  whole  capital,  could  be  entitled  to  no 
part  of  the  surplus,  and  Leserman's  share  would  be  diminished  by 


568  ACCOUNTING   AND    DISTRIBUTION.  [<CHAP.  VIIL 

reason  of  the  sum  already  drawn  by  hirn.  The  losses  entailed  upon 
the  firm  by  reason  of  Goldsmith's  overdrafts  of  capital  or  otherwise, 
must,  of  course,  be  borne  equally.  .  .  . 

Judgment  reversed. 


WRIGHT  ei  al.    v.    CUDAHY. 

48  N.  E.  (111.)  39.      1S97. 

Carter,  J.  Wright  and  Catlin,  his  assignee  in  insolvency,  appel- 
lants herein,  filed  their  bill  in  equity  in  the  Circuit  Court  of  Cook 
County  to  dissolve  an  alleged  partnership  between  Wright  and  John 
Cudahy,  the  appellee,  and  for  an  accounting.  .  .  .  Both  parties  agree, 
and  the  evidence  shows,  that  to  all  outward  appearances,  and  in  their 
relations  to  third  persons,  there  was  on  the  31st  of  May  a  dissolu- 
tion of  the  partnership,  and  a  transfer  of  the  property  purchased  to 
Wright ;  and  we  are  of  the  opinion  that  such  apparent  termination  of 
the  partnership  relations  of  the  parties  should  be  treated  as  an  actual 
dissolution  as  between  themselves,  unless  it  is  made  to  appear  by  a 
preponderance  of  the  evidence  that,  as  alleged  by  Wright,  he  and 
Cudahy  continued  to  be  partners  secretly  throughout  the  deal.  In 
other  words,  the  burden  of  proof  was  upon  Wright  to  prove  that  the 
termination  of  their  business  relations,  which  they  both  asserted  to 
others  and  to  the  public,  was  not  real,  but  only  apparent;  and,  if  he 
failed  to  make  such  proof,  his  bill  is  not  sustained.   .   .   . 

We  have  carefully  examined  and  considered  the  evidence,  which 
is  voluminous,  but  are  unable  to  find  that  there  is  any  preponderance 
in  favor  of  the  complainant  in  the  bill.  .  .  .  Wright  has  failed  to 
establish  by  a  preponderance  of  the  evidence  that  there  was,  by 
agreement  between  himself  and  Cudahy,  a  secret  partnership  after  the 
understanding  between  them  of  the  31st  of  May,  and  the  transfer  of 
the  purchases  theretofore  made,  to  him.  So  finding,  we  consider  it 
unnecessary  to  extend  the  length  of  this  opinion  in  reviewing  the 
evidence  in  detail. 

It  is  also  insisted  on  the  part  of  appellee  that,  if  the  evidence 
showed  that  the  partnership  did  in  fact  continue  until  the  failure, 
still  the  contract  was  a  gambling  contract  under  the  statute,  against 
public  policy,  and  void.  This  defence  was  not  set  up  in  the  answer, 
but  does  appear  in  the  proof.  Appellants  insist,  however,  that  the 
evidence  upon  this  point  was  erroneously  admitted,  over  their  specific 
objection,  and  cannot  be  considered,  on  the  ground  that  the  allega- 
tions and  proofs  must  correspond,  and  that  proof  without  allegations 
in  the  pleadings  is  of  no  more  avail  than  would  be  allegations  with- 
out proof.  It  is  also  contended  by  appellants  that  the  evidence  does 
not  bring  the  contract  within  the  terms  of  the  statute.  We  think  it 
does. 


§  1.]  RULES    OF   DISTRIBUTION. 

Section  130  of  the  Criminal  Code  of  this  State  provides:  "Who- 
ever .  .  .  forestalls  the  market  by  spreading  false  rumors  to  influence 

the  price  of  commodities  therein,  or  corners  the  market.  or  attempts 

to  do  so,  in  relation  to  any  of  such  commodities,  shall   be  fined   DOt 
less  than  810,  nor  more  than  $1,000,  or  confined   in   the  comity  jail, 
not  exceeding  one  year,  or  both;  ami  all  contracts  made  in  violation 
of  this  section  shall  be  considered  gambling  contracts,  and  shall  be 
void."     The  testimony  of  Cudahy,  when  called  as  a  witness  by  the 
complainant,  was  that,  when  he  (Wright)  proposed  that  they  go  into 
the  deal  together,  he  said  he  could  buy,  probably.  150,000  or  160,000 
barrels  of  pork,  and  get  the  market  short,  and  make  his  own  price  for 
the  balance  over  the  pork  actually  in  existence;  that  there  were  not 
above  7.">,000  barrels  in  the  Chicago  market.     This  was  not  denied 
by  "Wright,  except  as  to  the  quantity  in  the  Chicago  market;  but  he 
claimed  that  by  the  deal   they  intended  merely  to  take  advantage  of 
the  favorable  condition  of  the  market;   that   there  was   a   short  corn 
crop  the  year  before,  and  he  counted  on  a  short  supply  of  hogs.      The 
evidence  tends  to  show  that  Wright  and  other  members  of  the  board 
of  trade  had  reasonably  accurate   information  as  to  the  quantity  of 
mess  pork  on  the  market  in  Chicago  and  other  cities;  and  Wright 
himself   testilied    that    three-fourths    of    such    pork    was    packed    in 
Chicago.     He  knew  that  mess  pork,  to  be  what  is  called  k"  regular," 
must  be  packed   in  a  certain  way.  and   between  October    l>t  and   the 
1st  of  the  following  April,  and  that  the  market  could  not  be  >t<- 
with  new  pork  after  their  operations  were  commenced,  soon  a  tier  the 
middle  of  April,  and  before  the  deal  would  be  closed.     ( >n  this  branch 
of  the  case,  it  is  a  strong  circumstance  tending  to  show  that,  whether 
Cudahy  continued  to  be  a  partner  with  Wright  or  not,  the  scheme  was 
to  corner  the  market;  that  from  18,000  to  20,000  barrels  of  the  pork 
purchased,  and  which  was  delivered    through   the  Cudahy    Packing 
House,  was  taken  out  of  the  barrels  by  the  direction  of  Cudahy  and 
Wright,  at  least  with  the  knowledge  and  consent  of  both,  and  made 
11  irregular,"  by  sawing  the  pieces  through  the  ribs,  and  repacking, 
thus  so  changing  its  condition  that  it  could  not  be  deli  vend  on  con- 
tracts made  on  board  for  "regular"  mess  pork,  and  reducing  the 
amount  of  such  pork  on  the  market  by  the  amount  so  changed.     Wright 
testified  that  this  was  done  so  that  the  pork  could  not  be  shipped  in 
again,    resold,    and  delivered  to   them;  that  he  did   not   want   to  be 
buying  and  selling  the  same  pork  over  and  over  again.      In  his  tes- 
timony  he  defined  a  "  corner "  to  be  "where  somebody  succeeds  in 
buying  for   future   delivery  more   property  of   a  given   hind   than   is 
possible  for  the  seller  to  deliver  before  tin'  day  of  the  maturity  of  the 
contract."    It  is  evident  that  thai  is  precisely  what  he  was  attempting 
to  do.     By  the  attempt,  the  market  price  of  pork  was  advanced;  and, 
although  the  deal  eventually  prove. 1  unsuccessful,  theattempl  lo  corner 
the  market,  and  the  contract  under  which  this  attempt  was  made,  weie 
in  direct  conflict  with  the  statute.      Samuels  v.  Oliver,    I8l     [11.   '< 


570  ACCOUNTING   AND    DISTRIBUTION.  [CHAP.  VIII. 

It  is  insisted,  however,  that,  as  the  illegality  of  the  contract  was 
not  set  up  as  a  defence  in  the  answer,  the  court  could  not  consider 
the  evidence  on  that  branch  of  the  case.  The  testimony  adduced  on 
the  part  of  complainant  himself  tended  strongly  to  show  that  the 
contract  was  illegal,  but,  even  if  it  had  not,  it  was  not  error  for  the 
court  to  inquire  into  the  nature  of  the  contract  which  it  was  asked  to 
enforce,  and,  if  it  was  found  to  be  against  public  policy  or  one  pro- 
hibited by  public  law,  to  refuse  to  aid  either  party,  and  leave  them 
where  they  had  placed  themselves.  The  parties  could  not,  whether 
by  mistake  or  design,  compel  the  court  to  adjudicate  upon  their 
alleged  rights  growing  out  of  a  contract  void  because  against  public 
policy  or  in  violation  of  public  law,  by  the  simple  process  of  narrow- 
ing their  pleadings.  The  court  itself  had  the  right  to  know  the  nature 
of  the  contract  it  was  called  upon  to  enforce,  and  to  deny  all  relief, 
where  it  appeared  that  such  contract  was  in  violation  of  law  or  the 
public  policy  of  the  State,  whether  so  alleged  in  the  pleadings  or  not. 
To  hold  otherwise  would  subordinate  the  courts  to  the  ingenious 
devices  of  men  engaged  in  illegal  and  even  criminal  transactions, 
and  compel  them  to  carry  out  in  the  solemn  forms  of  law,  and  by  its 
resistless  power,  transactions  which  the  same  law  had  pronouuced 
criminal  and  void. 

The  citation  of  authorities  ought  not  to  be  necessary  to  sustain  the 
proposition  that  parties  cannot  compel  a  court  of  equity  to  euforce  a 
contract  appearing  by  the  evidence  to  be  illegal,  by  the  simple  device 
or  inadvertence  of  omitting  from  the  pleadings  the  charge  of  such 
illegality.  In  refusing  to  enforce  such  contracts,  the  court  does  not 
act  for  the  benefit  nor  for  the  preservation  of  the  alleged  rights  of 
either  party,  but  in  the  maintenance  of  its  own  dignity,  to  the  public 
good,  and  the  laws  of  the  State.  Holman  v.  Johnson,  Cowp.  343. 
It  may  well  be  that  had  the  trial  court,  under  the  pleadings,  refused 
to  investigate  the  question  as  to  the  legality  of  the  contract,  and  had 
found  for  the  complainant,  the  defendant  could  not  have  alleged  such 
refusal  as  error;  but  that  question  is  not  presented  here.1  .   .  . 

The  judgment  of  the  Appellate  Court  will  be  affirmed. 

Judgment  affirmed. 


§  2.     Eepaying  Advances. 

FOLSOM   v.    MARLETTE. 

49  Pac.  (Xev.)  39.    1897. 

Belknap,  C.  J.  This  is  a  suit  for  an  accounting  between  partners, 
in  which  each  demands  a  balance  due  from  the  other.  The  partner- 
ship was  formed  on  the  29th  day  of  September,  1880,  and  continued 

1  Cf.  The  Highwayman's  Case,  Everet  v.  "Williams,  9  L.  Q.  Eev.  197. 


§  2.]  REPAYING    ADVANCES.  5  ,  1 

until  the  27th  day  of  May,  1890,  when  it  was  dissolved.  Its  busi- 
ness was  that  of  contracting  for  the  cutting  of  cord  wood  and  logs, 
and  the  sawing  of  timber,  to  winch  the  business  of  merchandising 
was  subsequently  added.  They  were  equal  partners.  The  Distrii 
Court  ordered  judgment  in  favor  of  respondent  for  the  sum  of 
$6,540.-49.  From  the  judgment  and  an  order  refusing  a  new  trial, 
defendant  has  appealed.  The  assignment  of  errors  will  be  considered 
seriatim. 

1.  Wells,  Fargo,  &  Co.  Account.  Between  February  24,  1885,  and 
the  month  of  October  following,  cheeks  aggregating  the  sum  of 
$1,300  were  drawn  upon  and  paid  by  the  banking  house  of  Wells, 
Fargo,  it  Co.,  of  San  Francisco,  of  which  the  books  of  the  firm  made 
no  mention.  Appellant  contends  that  respondent  is  chargeable  with 
this  amount,  upon  the  theory  that  he  drew  the  checks.  Conceding, 
for  the  purpose  of  the  case,  that  respondent  drew  the  checks. — 
although  the  District  Court  expressly  failed  to  find  the  fact,  —  it  do. 
not  follow  that  he  is  responsible  to  appellant  for  the  amount.  Dur- 
ing the  business-season  of  each  year,  the  firm  employed  a  bookkeeper, 
whose  duty  it  was  to  correctly  keep  the  books  and  accounts.  This 
person  was  not  the  servant  of  the  respondent  only,  but  of  the  firm, 
and  any  errors  or  mistakes  made  by  him  were  not  chargeable  to  one 
member  of  the  firm  only,  unless  under  special  circumstances,  not 
existing  here. 

2.  Herbert  Account.  In  the  month  of  August,  isx;i,  respondent 
received  the  sum  of  $550  in  part  payment  of  an  account  against  one 
Herbert.  The  amount  was  credited  to  the  account,  and  cash  debited 
on  the  journal  and  petty  ledger.  Appellant  contends  that  respondent 
should  be  charged  with  the  sum.  The  failure  to  properly  charge  these 
payments  may  be  attributable  to  some  innocent  cause,  as  no  sugges- 
tion of  improper  conduct  has  been  hinted  at.  Respondent,  as  before 
said,  cannot  be  charged  with  mistakes  which  may  have  been  made  in 
bookkeeping. 

3.  Valenzuela  Account.  The  firm  sold  goods  to  Yalenzuela,  and 
sustained  a  loss  of  about  $1,250  upon  the  account.  It  is  claimed  by 
appellant  that  Folsom  agreed  with  Marlette  that  the  goods  should 
not  be  sold  to  the  debtor  without  a  guarantee  of  a  third  party  for  the 
payment  of  the  account,  and  that  afterwards  the  goods  were  sold 
without  such  guarantee,  and  a  loss  occurred  in  consequence.  This 
contention  is  answered  by  the  fact  that  the  testimony  is  directly  con- 
flicting, and  the  district  judge,  by  disallowing  the  claim,  must 
impliedly  have  found  in  favor  of  respondent  upon  this  point. 

4.  Respondent  paid  to  the  creditors  of  tin-  linn,  after  it  has  dis- 
continued business,  a  short  time  prior  to  its  dissolution,  the  sum 
of  $16,747.72.  The  District  Court  allowed  Lnteresl  upon  this  sum 
amounting  to  the  sum  of  $7,224.06.  The  money  thus  paid  is  properly 
treated  as  an  advancement  for  the  benefit  of  the  linn.  Lindlcv.  in 
his  work  upon  Partnership,  says:  "An  advance  by  a  partner  to  a  firm 


572  ACCOUNTING   AND   DISTKIBUTION.  [CHAP.  VIII 

is  not  treated  as  an  increase  of  bis  capital,  but  rather  as  a  loan,  on 
which  interest  ought  to  be  paid;  and,  by  usage,  interest  is  payable 
on  money  bona  fide  advanced  by  one  partner  for  partnership  purposes, 
at  least  when  the  advance  is  made  with  the  knowledge  of  the  other 
partners."  Volume  1,  p.  390.  The  propriety  of  this  charge  admits 
of  no  question.  The  firm  had  no  capital.  It  had  been  in  the  habit 
of  paying  interest  at  its  banker's  upon  over-drafts  for  a  long  time. 
Appellant  has  not  suggested  in  his  testimony  that  this  money  was 
not  advanced  with  his  knowledge  and  acquiescence.  Under  these 
circumstances,  the  charge  of  interest  is  equitable.  Baker  v.  Mayo, 
129  Mass.  517;  Morris  v.  Alien,  14  N.  J.  Eq.  44;  Berry  v.  Folkes, 
60  Miss.  576;  Collender  v.    Phelan,  79  N.  Y.  366. 

5.  On  or  about  the  29th  day  of  July,  1889,  respondent,  with  con- 
sent of  appellant,  appropriated  certain  personal  property  belonging 
to  the  firm  to  his  own  use,  charging  himself  therefor  with  the  sum  of 
67,717.17  upon  the  books  of  the  firm.  There  had  been  no  agreement 
touching  the  valuation  to  be  fixed  on  the  property,  and  upon  the  trial, 
under  the  terms  of  a  stipulation  filed  in  the  case  by  eounsel,  appellant 
objected  to  the  price  so  fixed  by  respondent.  This  stipulation,  among 
other  things,  provided  "  That  a  transcription  of  the  firm  books  that 
had  been  introduced  in  evidence  should  be  treated  as  a  correct  tran- 
scription, and  as  to  all  items  and  all  balances  appearing  in  said 
transcription,  opposite  to  which  is  a  red  cross,  such  items  and 
balances  are  disputed  by  defendant,  S.  H.  Marlette."  Accordingly, 
appellant,  Marlette,  did  cause  an  "X"  in  red  ink  to  be  set  opposite 
this  item;  thus  indicating  that  he  contested  the  valuation  placed  upon 
the  property  by  the  respondent,  Folsom.  Evidence  was  introduced 
touching  the  value  of  the  property,  and  the  fact  was  also  shown  that 
respondent  had  charged  himself  with  $7,717.17  for  it.  Upon  all  of 
the  testimony  introduced,  the  court  found  as  a  fact  that  the  value  of 
the  property  was  $5,000,  and  charged  the  respondent  with  that  sum 
in  the  adjustment  of  the  accounts.  Appellant  claims  that  respondent 
should  be  concluded  by  the  value  fixed  by  himself  upon  the  books  of 
the  firm,  and  therefore  respondent  should  have  been  charged  with 
$2,717.17  more  than  the  value  fixed  by  the  finding.  It  must  be 
stated,  as  a  matter  of  fact,  that  there  was  no  objection  to  the  intro- 
duction of  testimony  tending  to  establish  a  lower  valuation  than  the 
charge  made  by  the  respondent.  Appellant  must  have  expected  that 
the  District  Court  would  have  placed  a  greater  valuation  than  that 
with  which  the  respondent  had  charged  himself,  otherwise  there  was 
no  reason  for  the  objection  being  taken.  When  the  contest  upon  the 
charge  was  inaugurated  by  the  appellant,  under  the  peculiar  circum- 
stances of  the  case,  the  question  of  the  value  of  the  property  was  re- 
opened, and  respondent  had  the  right  to  establish  a  lesser  value,  as 
the  appellant  to  establish  a  greater  value.  He  took  the  risk,  and  must 
abide  the  result.  As  the  respondent  has  been  allowed  interest  upon 
the  advance  he  made  for  the  benefit  of  the  firm,  it  is  only  equitable 


§  2.]  REPAYING   ADVANCES. 

that  the  appellant  should  he  allowed  interest  upon  the  value  of  this 
property,  fixed  at  85,000,  from  the  date  of  its  appropriation  by 
respondent. 

G.    "Wages.     Appellant  absented  himself   from  the   Locality  wb 
the  firm  operated  a  considerable   portion  of  the  time.     Respondent 
charged  him  for  his  services  for  a   portion   of  the  time.     The  first 
item  of  this  nature  was  charged  during  the  winter  < ■:'   1882  83,  and 
amounted  to  the  sum  of  $300.      No  contention  is  made  touching  this 
charge.     During   the   year    L885,    $1,050   was    charged.     The   court 
allowed  this  charge  after  having  deducted  the  charge  for  wages  dur- 
ing the  month  of  July  of  that  year.      The  general  rule  undoubtedly  is 
that  one  partner  is  not  entitled  to  charge  the  other  compensation  for 
his  services  without  special  agreement.     There  was  no  Bpecial  agree- 
ment in  this  case,  and  the  majority  of  the  court  are  in  favor  of  the 
enforcement  of  this  rule.     One  member  of  the  court,   however,  dis- 
sents from  this  view;  holding  that  as  these  charges  were   made  dur- 
ing the  course  of  business,  as  the  books  wen  sible  to  appellant, 
and  a  statement  containing  these  charges  was  delivered  to  him  up- 
wards of  two  years  prior  to  the  dissolution  of  the  firm,  and  no  objec- 
tion having  been  made  then  or  afterwards  until  this  proceeding  was 
commenced,  he  should  be  deemed  to  have  acquiesced   in  the  chat 
The  charge  will  be  stricken  out.     The  case  will  be  remanded  to  the 
District  Court,  with  instructions  to  modify  its  judgment  by  disallow- 
ing respondent  the  81,050  allowed  as  wages,  and  to  allow  him  simple 
interest  at  the  rate  of  7  per  cent  per  annum,  instead  of  10  per  cent 
per  annum,  upon  the  advances  made  by  him  after  they  had  ceased  to 
do  business  together,  and  also  allow  appellant  the  same  interest  <.>n 
the  S5,000,  the  value  of  the  property,  from  July  29,  L889. 

Under  the  circumstances  of  the  case,  the  costs  in  the  District  Court 
should  not  be  allowed  respondent;  and  that  court  will  also  correct  its 
judgment  by  ordering  each  party  to  pay  his  own  costs;  the  judgment, 
as  corrected,  to  bear  legal  interest  from  date  of  original  entry.  The 
judgment  thus  modified  and  corrected  is  affirmed;  each  party  to  pay 
his  own  costs  upon  this  appeal. 

Boxmfield  and  Masset,  JJ.,  concur. 


MAGILTON   v.    STEVENSON   et  al. 

17:5  Pa.  St.  5G0:  34  At.  235.     1896. 

Bill  in  equity  for  the  dissolution  of  a  partnership  and  an  account. 
Among   the   conclusions  of  law  in   the  master's  report,  which   » 
excepted  to  by  the  defendants,  was  the  following:   "The  master  holds 
an  account  should  be  stated,  and  that,  whereas  in  accordance  with  the 
terms  of  the  partnership  agreement,  Magilton  -shall  in  no  event  be  put 


574  ACCOUNTING   AND   DISTRIBUTION.  [CHAP.  VIIL 

to  a  loss  of  more  than  $1,250,  and  the  balance  shall  be  made  up  and 
paid  to  him  in  case  of  greater  loss  by  the  other  partners,' 

The  amounts  contributed  by  the  plaintiff  being      .    $4,670.00 
Amount  advanced  by  him  to  the  receiver      .     .     .         100.00 

Making  a  total  of $4,770.00 

Deducting  agreed  maximum  of  loss 1,250.00 

Leaves  a  balance  of $3,520.00 

which  should  be  paid  b}'  the  defendants  to  the  plaintiff ;  and  that  they 
should  be  held  to  be  jointly  and  severally  liable  to  the  full  payment  of 
the  same,  together  with  the  costs  of  the  cause,  including  a  suitable 
allowance  for  the  services  of  the  receiver." 

J.  G.  Johnson  and  De  Forrest  Ballon,  for  appellants. 

Joseph  M.  Pile,  for  appellee. 

Fell,  J.  The  first  contention  of  the  appellant  is  that  the  decree  in 
this  case  should  not  have  been  entered,  as  the  partnership  affairs  had 
not  been  settled  and  the  plaintiff's  loss  ascertained.  The  partnership 
was  formed  for  the  single  purpose  of  constructing  waterworks  in  May- 
field,  Ky.  The  only  contribution  of  capital  was  that  made  b}'  the 
plaintiff.  The  land  on  which  the  works  were  to  have  been  constructed 
had  been  transferred,  and  the  enterprise  abandoned,  and  the  business 
was  a  total  failure.  The  receiver  was  unable  to  obtain  a  bid  for  the 
few  articles  of  personal  property  found  on  the  premises,  and  nothing  of 
value  came  into  his  possession.  The  report  of  the  learned  master  that 
the  remaining  property  of  the  partnership  was  "  practically  worthless," 
as  explained  b}-  the  testimony  and  other  parts  of  his  report,  is  in  effect 
a  finding  that  they  were  worthless.  There  were  no  assets,  no  accounts 
to  settle,  and  nothing  remained  but  to  adjust  the  equities  between  the 
parties. 

The  partnership  agreement  provides  that:  "The  profits  and  losses 
are  to  be  shared  equally  by  the  partners,  each  being  entitled  to  one- 
fourth  of  the  profits,  and  to  be  liable  for  one-fourth  of  the  losses  ; 
provided,  however,  that  the  said  Magilton  shall  in  no  event  be  put 
to  a  loss  of  more  than  $1,250,  and  the  balance  shall  be  made  up, 
and  paid  to  him  in  case  of  greater  loss,  bjT  the  other  parties."  The 
master  held  that  the  liability  of  the  defendants  to  pay  the  loss  of  the 
plaintiff  in  excess  of  $1,250  was  a  joint  and  several  liability.  It  is 
conceded  that  the  finding  of  the  master  on  this  point  would  be  correct 
if  the  parties  stood  in  the  relation  of  strangers  ;  but  it  is  contended 
that,  in  view  of  their  partnership  relation,  the  proviso,  read  in  connec- 
tion with  the  contract,  imposes  a  liabilit\-  on  each  of  the  remaining 
partners  to  bear  only  one-third  of  the  plaintiff's  loss  in  excess  of 
$1,250.  The  plaintiff  furnished  the  whole  cash  capital,  and  the  two- 
fold purpose  of  the  proviso  was  to  fix  a  limit  beyond  which  his  loss 
should  not  extend,  and  to  secure  the  repayment  by  the  other  partners 
of  the  balance  of  his  contribution  to  the  common  property.     This  was 


§  3.]  BEPAYHTG  CAPITAL  575 

done  by  providing  that  the  balance  should  be  paid  to  him  by  them. 
This  is  the  plain  meaning  of  the  words  used.  In  the  preceding* clause, 
there  is  a  distinct  limitation  of  individual  liability  for  the  general  losses' 
of  the  business  ;  and  the  omission  of  this  limitation  from  the  proviso  is 
significant,  and  indicates  an  intention  that  each  should  be  liable  for  the 
whole  in  the  event  of  the  failure  of  the  others  to  pay  their  shares.  As 
the  partnership  had  ended,  and  the  defendants  had  refused,  after 
demand,  to  adjust  the  accounts  in  accordance  with  the  agreement  we 
see  no  error  in  the  allowance  of  interest. 

The  decree  is  affirmed,  at  the  cost  of  the  appeUanL 


§  3.     Repaying  Capital. 

WHITCOMB   v.   CONVERSE.    ET   al. 
119  Mass.  38.     1875. 

Bill  by  plaintiff  to  compel  contribution  by  his  former  co-partners 
to  the  losses  incurred  by  the  firm.  By  the  partnership  agreement, 
plaintiff  was  to  contribute  $50,000  of  capital  and  to  receive  25  per  cent 
of  the  net  profits.  Converse  was  to  contribute  $25,000  and  to  receive 
25  per  cent  of  the  net  profits.  Blagden  and  Stanton,  the  other  part- 
ners, were  to  contribute  their  time,  and  each  was  to  receive  25  per  cent 
of  the  net  profits.  Upon  the  settlement  of  the  affairs  of  the  firm  a  loss 
of  about  $25,000  was  disclosed. 

C.  T.  Russell,  for  the  plaintiff. 

G.  O.  ShattucJc  and  O.   W.  Holmes,  Jr.,  for  defendant  Stanton. 

Gray,  C.  J.  In  the  absence  of  controlling  agreement,  partners  must 
bear  the  losses  in  the  same  proportion  as  the  profits  of  the  partnership, 
even  if  one  contributes  the  whole  capital,  and  the  other  nothing  but  his 
labor  or  services.  3  Kent,  Com.  28  29.  Whether  a  loss  of  capital  is 
a  partnership  loss,  to  be  borne  by  all  the  partners,  depends  upon  the 
nature  and  extent  of  the  contract  of  partnership. 

If,  as  is  not  unfrequently  the  case  in  a  partnership  for  a  single  ad- 
venture, the  mere  use  of  the  capital  is  contributed  by  one  partner,  ami 
the  partnership  is  in  the  profits  and  losses  only,  the  capital  remains  the 
property  of  the  individual  partner  to  whom  it  originally  belonged,  any 
loss  or  destruction  of  it  falls  upon  him  as  the  owner,  and,  as  it  never 
becomes  the  property  of  the  partnership,  the  partnership  owes  him 
nothing  in  consideration  thereof.  Story,  Partn.  27,  20  ;  Ucran  v.  Hall, 
1  B.  Mon.  159. 

But  where,  as  is  usual  in  an  ordinary  mercantile  partnership,  a  part- 
nership is  created  not  merely  in  profits  and  losses,  but  in  the  property 
itself,  the  property  is  transferred  from  the  original  owners  to  the  part- 
nership, and  becomes  the  joint  property  of  the  latter;  a  corresponding 
obligation  arises  on  the  part  of  the  partnership,  to  pay  the  value  thereof 


576  ACCOUNTING   AND    DISTRIBUTION.  [CHAP.  VIII. 

to  the  individuals  who  originally  contributed  it ;  such  payment  cannot, 
indeed,  be  demanded  during  the  continuance  of  the  partnership,  nor  are 
the  contributors,  in  the    absence  of  agreement  or  usage,    entitled  to 
interest ;  but  if  the  assets  of  the  partnership,  upon  a  final  settlement, 
are  insufficient  to  satisfy  this  obligation,  all  the  partners  must  bear  it 
in  the  same  proportion  as  other  debts  of  the  partnership.     Julis  v. 
Ingalls,   1  Allen,  41;  Bradbury  v.  Smith,  21  Maine,   117;  Barfield  v. 
Loughborough,  L.  R.  8  Ch.  1 ;  In  re  Anglesea  Colliery  Co.,  L.  R.  2  Eq. 
379,  387;   s.  c.  L.  R.   1  Ch.  555;  Nowell  v.  Nowell,   L.    R.    7   Eq. 
538  ;    In  re  Hodges  Distillery  Co.,  L.  R.  6  Ch.  51,  56  ;  1  Lindl.  Partn. 
(3d  ed.)    696,  827,   828.     Only  two  cases  were  cited  in  the  learned 
argument  for  the   defendant  Stanton,    in  which  opinions  inconsistent 
with  this  view  have  been  expressed.     The  one  in  Everly  v.  Dueborow, 
1  Leg.  Gaz.  Rep.  127,  a  nisi prius  decision,  with  no  reference  to  au- 
thorities, except  an  early  edition  of  Lindley  on  Partnership,  which  has 
been  corrected  by  the  learned  author,  ubi  supra,  conformably  to  the 
adjudged  cases.     The  other  is  Cameron  v.  Watson,  10  Rich.  Eq.  64. 
That  was  a  bill  in  equity  to  settle  the  affairs  of  a  partnership,  to  which 
Cameron  had  contributed  labor  and  Watson  capital.     The  master,  to 
whom  the  case  was  referred,  allowed  the  case  of  Watson  for  so  much 
of  the  capital  as  he  had  not  withdrawn  during  the  continuance  of  the 
partnership,  but  disallowed  his  claim  for  interest  thereon,     pp.  68,  73. 
Cameron  excepted  to  the  allowance  of  Watson's  claim  for  capital,  and 
Watson  excepted   to  the  disallowance   of  interest.     The   chancellor, 
before  whom  the  exceptions  were  heard  in  the  first  instance,  overruled 
the  exception  of  Cameron,  and  also  that  of  Watson  as  regarded  inter- 
est before  the  dissolution  of  the  partnership,  but  sustained  it  so  far  as 
to  allow   him  interest  after  the  dissolution,   pp.  88-90,  95,  96.     The 
Court  of  Appeals,  although  in  one  part  of  its  opinion  appearing  to  dis- 
countenance  Watson's   claim   for   capital,    ended   by    confirming  the 
master's  report  in  every  particular,  pp.   103,   107,   108.     So  that  the 
final  judgment,  while  it  disallowed  Watson's  claim  for  interest,  estab- 
lished  his  claim  for  capital,  and  was   in   exact  accordance  with  our 
conclusion. 

In  the  case  at  bar,  the  partnership  was  not  for  a  single  enterprise, 
but  for  the  transaction  of  a  commission  business  in  New  York  and 
Boston  for  a  year.  Converse  and  Whitcomb  contributed  the  whole 
capital,  in  unequal  proportions.  Converse  was  to  contribute  "  such 
time  as  he  may  be  able  to  give  ;  "  and  Whitcomb  and  the  other  two 
partners,  Blagden  and  Stanton,  were  each,  "  to  contribute  all  his  time 
to  the  business."  Those  partners  who  contributed  the  capital  did  not 
contribute  merely  the  use  thereof,  but  the  capital  itself,  and  were  by 
express  agreement  to  receive  interest  thereon  at  rates  specified  in  the 
articles  of  co-partnership.  The  partners  were  by  agreement  to  receive 
each  one-fourth  of  the  net  profits,  and  by  implication  of  law  must  share 
the  losses  in  the  same  proportion.  The  capital  contributed  became  the 
property  of  the  partnership,  and  the  partnership,  consisting  of  all  the 


§  3.]  REPAYING   CAPITAL.  577 

partners,  became  liable  to  "Whitcomb  and  Converse,  respectively,  for 
the  amount  of  capital  paid  in  by  them. 

Blagden,   one  of  the  partners,  being  insolvent  and  unable  to    i 
charge  any  part  of  the  obligation,  it  must  rest  in  equity  upon  the  three 
solvent  partners  in  equal  proportions.     Whitman  r.  Porter,  L07  M 
522  ;  1  Lindl.  Partn.  789,  790. 

Decree  for  the  plaintiff  accordingly. 


TAFT  et  al   v.   SCHWAMB. 

80  111.  289.     1875. 

Scholfield,  J.  The  principal  question  to  be  determined  in  the  case 
before  us  is,  upon  whom  shall  the  loss,  in  consequence  of  the  destruc- 
tion of  the  building,  machinery,  engine,  boiler,  tools,  etc.,  mentioned 
in  the  articles  of  co-partnership  as  delivered  in  as  capital  stock  by 
Schwamb,  fall?  Upon  Schwamb  alone,  or  upon  the  parties  in  tbe  pro- 
portion they  are  to  share  profit  and  loss?  The  latter  was  the  conclu- 
sion of  the  court  below  ;  but  appellants  insist  that  the  former  is  the  basis 
upon  which  the  account  should  have  been  stated.    The  articles  stipulate  : 

"  This  co-partnership  to  commence  on  the  twenty-eighth  day  of  November, 
a.  n.  1867,  and  to  continue  for  the  term  of  thirteen  months  and  three  days, 
ending  on  the  thirty-first  day  of  December,  a.  d.  1868;  and  to  that  end  and 
purpose  the  said  parties  above  named  have  each  delivered  in,  as  capital  stock, 
as  follows  :  Fred.  Schwamb,  the  building  known  as  No.  490  South  Canal 
Street,  and  all  machinery,  including  engine,  boiler,  tools,  benches,  lumber,  all 
manufactured  stock,  and  that  under  process  of  manufacture,  now  in  his  pos- 
session, supposed  to  be  worth,  say,  $9,619.37,  the  same  to  be  determined  by 
an  inventory.  And  the  said  J.  W.  Taft,  and  1).  It.  Crego,  shall  put  in.  as 
capital  stock,  the  sum  of  $2,500,  making  a  total  capital  stock  of  §12.119.37,  to 
be  used  and  employed  in  common  between  them  for  the  support  and  manage- 
ment of  the  said  business,  to  their  mutual  benefit  and  advantage.  And  it  is 
further  agreed  between  the  parties  to  these  presents  that  the  said  firm  of  Taft, 
Schwamb,  &  Crego  shall  pay  interest,  annually,  to  F.  Schwamb  on  the  sum  of 
§7,119.37,  or  on  what  he  may  have  in  excess  of  said  Taft  and  Crego's  invest- 
ment." ..."  And  it  is  also  agreed  that  they  shall  and  will,  at  all  times 
during  said  co-partnership,  share,  bear,  pay.  and  discharge  between  them, 
each  his  share  of  all  rents  and  other  expenses  that  may  be  required  for  the 
support  and  management  of  the  said  business,  and  that  all  gains,  profits,  and 
increase  that  shall  come,  grow,  or  arise  from  or  by  means  of  their  said  busi- 
ness, shall,  after  paying  the  expenses  as  aforesaid,  be  divided  between  them, 
the  said  co-partners  to  receive  their  shares  as  follows  :  F.  Schwamb  to  receive 
one-half  of  all  gains  or  increase,  or  if  the  business  has  been  at  a  loss,  then  F. 
Schwamb  to  pay  one-half  of  all  such  losses;  J.  VY.  Taft  to  receive  one  fourth 
of  all  gains  or  increase,  or  to  stand  one-fourth  of  all  losses  in  all  business  trans- 
actions during  said  co-partnership;  1).  R.  Crego  to  receive  one-fourth  of  all 
gains  or  increase,  or  stand  one-fourth  of  all  losses  in  all  business  transactions 
during  said  co-partnership." 

37 


578  ACCOUNTING   AND    DISTRIBUTION.  [dlAP.  VIII. 

It  would,  in  our  opinion,  be  difficult  to  employ  language  more  clearly 
indicating  that  the  "  building,  machinery,  tools,"  etc.,  etc.,  became  the 
property  of  the  co-partnership,  and  ceased  to  be  the  individual  property 
of  Schwamb  than  that  employed  in  the  articles.  It  was  delivered  in  as 
"  capital  stock."  What  is  "  capital  stock,"  in  the  sense  in  which  the 
words  are  here  used?  Unmistakably,  the  capital  or  property  of  the 
co-partnership.  The  total  capital  stock  represents  everything  of  value 
belonging  to  the  co-partnership,  and  it  is  therefore  impossible  that 
property  delivered  in  as  "capital  stock"  could  be  anything  else  than 
co-partnership  property. 

Being  partnership  property,  the  interest  of  each  partner  in  it  is  to  be 
determined  by  the  extent  of  his  interest  in  the  partnership.  It  is  said: 
"  Each  partner  is  possessed  per  my  et  per  tout  —  that  is,  by  the  half  or 
moiety,  and  by  all,  or,  in  other  words,  each  has  a  joint  interest  in  the 
whole,  but  not  a  separate  interest  in  any  particular  part  of  the  partner- 
ship property  ;  and  being  so  possessed,  and  because  the  title  of  part- 
ners is  undivided,  it  follows  that  all  have  a  moiety  or  the  same  species 
of  interest  in  the  stock  in  trade,  whether  each  individual  partner  con- 
tributes exactly  in  the  same  proportion  or  not ;  but  their  several 
degrees  of  interest  must  be  regulated  according  to  the  stipulated  pro- 
portions, and  the  different  conditions  of  the  partnership.  To  whatever 
share  a  partner  may  be  entitled,  in  whatever  sum  the  firm  may  be 
indebted  to  him,  he  has  no  exclusive  right  to  any  part  of  the  joint 
effects,  until  a  balance  of  accounts  be  struck  between  him  and  his  co- 
partners, and  it  be  ascertained  precisely  what  is  the  actual  amount 
of  his  interest."  Gow  on  Partnership,  47  ;  Story  on  Partnership, 
§§15,  16. 

So,  in  Bopp  v.  Fox  et  a/.,  63  111.  543,  this  court  said :  "  It  is  a  well- 
known  rule,  governing  the  relation  of  partnership,  that  partnership 
property  must  first  be  applied  to  the  payment  of  partnership  debts,  and 
that  the  true  and  actual  interest  of  each  partner  in  the  partnership 
stock  is  the  balance  found  due  to  him  after  the  payment  of  all  the 
partnership  debts  and  the  adjustment  of  the  partnership  account 
between  himself  and  his  co-partners.  And,  in  equity,  real  estate 
forms  no  exception,  but  stands  on  the  same  footing,  in  this  respect, 
with  personal  property,  no  matter  in  whom  the  legal  title  may  be 
vested." 

It  is  undoubtedly  true  that  the  partners  may,  by  contract,  stipulate 
that  the  ownership  of  property  may  remain  in  one,  while  the  part- 
nership shall  have  only  the  use  of  the  proper ty,  or  make  any  other 
regulation,  as  between  themselves,  they  may  choose,  in  regard  to  the 
ownership  of  property  used  in  connection  with  the  business  of  the  co- 
partnership, not  pi-ohibited  by  law  ;  but  the  present  case  is  unaffected 
by  any  such  stipulation.  The  stipulation  here,  by  making  the  propert}' 
"  delivered  in"  by  Schwamb  "capital  stock,"  excludes  the  idea  of  a 
reserved  ownership  in  him,  and  only  a  mere  right  to  use  the  property 
by  the  co-partnership. 


§  3.]  REPAYING    CAPITAL.  579 

But,  it  is  contended,  there  is  a  limitation  in  the  clause  relating  to 
the  sharing  of  profit  and  loss,  which  shows  that  it  was  intended  Taft 
and  Crego  were  only  to  share  in  the  losses  resulting  from  basil 
transactions  prosecuted  subsequent  to  the  payment  of  the  capital 
stock,  and  disconnected  entirely  from  losses  of  capital  stock.  This 
is  based  on  the  words,  "  losses  in  all  business  transactions  during 
said  co-partnership,"  which  occur  in  the  statement  of  the  propor- 
tion of  losses  to  be  sustained  b}-  the  respective  parties  in  the  event 
of  loss. 

We  regard  this  as  but  another,  although  not  precisely  accurate  mode 
of  stating  that  losses  in  the  partnership  business  shall  be  borne  in  the 
proportion  there  stated. 

We  have  already  seen  that  the  property  put  in  by  Schwamb  became 
partnership  property,  and  the  clause  providing  for  the  payment  of 
interest  by  the  firm  to  him  on  ST, 119. 37,  or  the  excess  in  the  amount 
paid  in  b}'  him  over  that  paid  in  by  Taft  and  Crego,  is  a  recognition 
that  the  firm  was  indebted  to  him  in  that  amount.  This  shows,  then, 
at  the  outset,  the  firm  had  a  capital  of  $12,119.37,  but  was  indebted 
§7,119.37,  and  the  ownership  was  in  the  proportion  of  $2,500  in 
Schwamb  to  $2,500  in  Taft  and  Crego  jointly,  or  one-half  in  Schwamb 
and  one-fourth  each  in  Taft  and  Crego;  f.ora  which  it  would  result 
Schwamb  should  have  one-half  the  profits  and  bear  one-half  the  losses, 
and  Taft  and  Crego  each  should  have  one-fourth  the  profits  and  bear 
one-fourth  the  losses,  as  is  evidently  intended  by  the  clause  under  con- 
sideration. There  is,  in  no  view,  in  our  opinion,  anything  in  the  clause 
negativing  the  idea  that  loss  of  capital  should  be  borne  in  this  propor- 
tion, and,  in  the  absence  of  a  contrary  agreement,  this  is  the  equitable 
distribution  of  the  burden. 

Another  clause  in  the  articles  of  co-partnership  is  as  follows  : 

"  And  it  is  further  agreed  between  the  said  parties,  that,  if,  at  tin-  expira- 
tion of  said  co-partnership,  said  Taft  and  Crego  shall  wish  to  continue  in  said 
co-partnership,  and  become  equal  owners  in  the  capital  stock,  they  can  do  so 
upon  a  renewal  of  said  co-partnership.  The  tools,  fixtures,  and  machinery 
shall  be  put  in  at  a  discount  of  ten  per  cent  from  the  present  inventory 
price." 

This  expressly  recognizes  the  right  of  Taft  and  Crego  to  become 
equal  owners  in  the  capital  stock  on  the  terms  then  provided  for,  and. 
by  implication,  that  they  were  then  owners,  but  not  equal  owners  of 
the  capital  stock.  There  is  nothing  which  can  be  said,  even  inferen- 
tial ly.  to  recognize  an  individual  ownership  in  property  used  by  the 
co-partnership,  in  Schwamb.  The  subsequent  equal  ownership  may 
be,  not  of  property  then  owned  by  Schwamb,  but  of  the  "  capital 
stock." 

On  January  1,  1870,  which  was  at  the  expiration  of  the  term  of 
co-partnership,  as  provided  by  the  articles,  the  following  was  indorsed 
on  the  original  articles  and  signed  by  the  respective  parties : 


580  ACCOUNTING   AND    DISTRIBUTION.  [CHAP.  VIII. 

"  By  mutual  consent,  the  above  agreement  will  continue  until  January  1, 
1871,  with  the  exception  of  the  interest  of  the  partners,  each  partner's  interest 
to  be  equal  —  that  is,  each  one  to  have  one-third  of  all  profits,  if  any,  and 
stand  one-third  of  all  losses  in  all  business  transactions  during  the  continuance 
of  this  contract,  the  amount  drawn  out  by  each  partner  to  be  equal. 

"J.  VV.  Taft, 
"Frederick  Schwamb, 
"  D.  R.  Crego." 

We  think  it  clear  that  this  was  a  continuation  of  the  original  co- 
partnership as  provided  for  in  the  clause  quoted  from  the  articles,  and 
they  thenceforth  became  equal  owners  in  the  capital  stock.  It  is 
expressly  provided  that  each  partner's  interest  is  to  be  equal.  If  each 
partner's  interest  is  equal,  then  each  has  an  equal  interest  in  the  capital 
stock,  and,  by  consequence,  should  equally  share  in  profit  and  loss,  and 
the  subsequent  statement  of  the  proportion  of  profit  and  loss  to  be 
shared  cannot  be  presumed  to  have  been  intended  as  a  limitation, 
other  than  as  to  the  matters  connected  with  the  partnership,  in  contra- 
distinction to  losses  that  might  be  sustained  outside  of  those  matters.  .  .  . 

The  objection  that  all  the  costs  are  decreed  against  appellants,  when, 
since  the  object  of  the  suit  was  to  obtain  a  construction  of  the  written 
instruments  in  which  the  parties  were  mutually  interested,  they  should 
have  been  divided  equally,  we  do  not  think  well  taken.  Appellants,  by 
an  unauthorized  construction  of  the  written  instruments,  and  by  refus- 
ing to  account  on  any  other  basis,  necessitated  the  bringing  of  the  suit, 
and  the  payment  of  the  costs  properly  falls  on  them. 

We  are  of  opinion  there  is  no  error  in  the  record,  and  the  decree  will 
therefore  be  affirmed.  Decree  affirmed. 


§  4.     Adjusting  the  Equities  of  Partners. 

WARREN   v.    TAYLOR   et   al. 

60  Ala.  218.     1S77. 

Bill  by  Warren  against  Taylor  and  Mrs.  Benagh  for  a  settlement  of 
a  partnership  which  had  existed  between  the  complainant  and  Taylor, 
for  the  foreclosure  of  a  mortgage  which  said  Taylor  had  given  the  com- 
plainant on  his  interest  in  the  partnership  effects,  and  for  the  adjust- 
ment of  the  conflicting  liens  of  complainant's  mortgage  and  Mrs. 
Bcnagh's. 

The  chancellor  held  that  the  complainant  had  no  lien  as  a  partner  on 
account  of  the  bill  of  exchange  executed  by  Taylor  &  Warren  referred 
to  in  the  opinion,  which  complainant  had  paid,  but  must  rely  on  his 
mortgage,  and  that  Mrs.  Benagh's  mortgage  was  prior  to  his.  He  ren- 
dered a  decree  accordingly.     Complainant  appealed. 

Somerville  &  McEachin  and  S.  A.  M.   Wood,  for  appellant. 

Har grave  &  Lewis,  contra. 


§  4.]  ADJUSTING    THE    EQUITIES    OF    PARTNERS.  5S1 

Stoke,  J.     Money  was  borrowed  separately  from  two  persons,  each 
transaction  having  its  inception  about  the  same  time,  —  January,  1874. 
The  evidence  of  the  indebtedness  was  in  each  case  renewed  from  time 
to  time,  and  mortgages  given  as  security  on  the  same  property,  —  the 
borrower's  interest  in  the  ••Time-"  newspaper  and  its  property.     In 
the  case  of  Mrs.  Benagh's  loan,  the  first  mortgage  was  executed  di- 
rectly to  her,  on  the  same  date  as  the  loan.  January  8,  1*71.      This 
mortgage  was  renewed  every  three  months.     In  the  loan  by  Fitts  & 
Co.,  bankers,  the  bill  of  Taylor  cV   Warren,  partners  and  joint-owners 
of  the    "Times"   newspaper,    was  taken   as  security,   due  at   a   short 
interval.     This  debt  was  increased  during  the  year,  and  was  renewed 
every  thirty  days.     A  mortgage  on  Taylor's  interest  in  the  "Times" 
newspaper  was  given  to  Warren,  to  indemnify  him  against  the  use  of 
the  firm  name,  Taylor  &  Warren.     This  mortgage  was  also  renewed  at 
short  intervals.     At  the  request  of  Taylor,  none  of  the  mortgages  were 
put  on  record,    until   March,    1875.     Each  series  of  mortgages    was 
renewed  within  every  three  months;  and  this,  it  was  believed,  would 
preserve  the  lien  from  the  date  of  the  several  mortgages  given  in  re- 
newal, without  expense  and  notoriety  of  registration.     In  other  words, 
it  was  believed  that  mortgages  on  personalty  might  be  recorded  within 
three  months  after  their  execution,  and  this  would  operate  constructive 
notice  to  creditors  and  purchasers  from  their  date.     Each  of  the  loans 
was  for  the  personal  use  of  Mr.  Taylor,  and  no  part  of  the  money  was 
applied    to   the    purposes   of  the    partnership   of   Taylor    &    Warren. 
Neither  Mrs.  Benagh,  nor  Mr.  Warren,  knew  of  the  mortgage  to  the 
other,  or  that  the  other  loan  had  been  negotiated.     On   the   23d  of 
March,  1875,  Mr.  Taylor  being  short  in  the  payment  of  interest,  prom- 
ised quarterly,  to  Mrs.  Benagh,   she   consulted   counsel,   and.  on  his 
advice,  had  her  mortgage  recorded  on  that  day.     Warren's  mortgage 
was  recorded  four  days  afterwards.     The  question  presented  is,  which 
has  the   paramount  claim  on  the  mortgaged  property?     Warren  has 
paid  up  the  bill  to  Fitts  &  Co.  out  of  his  private  funds  ;  and  he  is  the 
actor  in  this  suit. 

1.  In  settling  partnership  accounts  each  partner  is  clothed  with  the 
right  to  insist  that  the  partnership  effects  shall  be  first  applied  to  the 
payment  of  the  partnership  debts  ;  and  this  right  will  prevail  over  the 
claims  of  an  alienee  or  creditor  of  the  co-partner.  So  clearly  defined 
is  this  right  — so  necessary  to  persons  engaging  in  joint  adventures  of 
this  kind  — that  it  has  been  long  and  firmly  settled  that  each  partner 
has  a  lien  on  the  effects,  that  they  shall  be  applied  primarily  to  the 
extinguishment  of  the  partnership  liabilities.  This  results,  naturally 
and  necessarily,  from  the  nature  of  the  enterprise,  and  of  the  title  ly 
which  the  property  is  held.  The  title  is  in  the  company,  or  association 
of  individuals,  and  no  one  of  the  number  has  a  separate  ownership  or 
right  to  any  part  or  piece  of  the  property  or  effects  of  the  partnership. 
And  the  lien  goes  further  than  this.  After  the  debts  are  all  paid,  each 
partner  has  a  lien  on  the  remaining  partnership  effects,  for  any  balance 


582  ACCOUNTING   AND   DISTRIBUTION.  [CHAP.  VIIL 

due  him  upon  a  proper  accounting  together.  1  Story's  Eq.  Jur.  §  677  ; 
Moore  v.  Smith,  19  Ala.  774  ;  Donelson  v.  Posey,  13  Ala.  752  ;  Can- 
non v.  Copeland,  43  Ala.  201  ;  McGown  v.  Sprague,  23  Ala.  524 ; 
Reynolds  v.  Mardis,  17  Ala.  32;  Reese  v.  Bradford,  13  Ala.  837; 
Lucas  v.  Atwood,  2  Stew.  378 ;  Emanuel  v.  Bird,  19  Ala.  596 ; 
Bridge  v.  McCullough,  27  Ala.  661  ;  Waldron  y.  Simmons,  28  Ala. 
629  ;  Andrews  v.  Kieth,  34  Ala.  722  ;  Coster  v.  Bank  of  Georgia,  24 
Ala.  37;  Parsons  on  Partn.  265,  350,  351,  352,  168,  502;  Bank  v. 
Carrolton  Railroad,  11  Wall.  624;  Rodriguez  v.  Hefferman,  5  Johns. 
Ch.  417;  Sitler  v.  Walker,  1  Freem.  Ch.  77. 

2.  The  disputed  question  in  this  case  is,  whether  the  claim  of  War- 
ren is  a  partnership  demand.  There  can  be  no  question  that  it  was  a 
partnership  debt,  so  long  as  it  remained  unpaid  to  Fitts  &  Co.  ;  and 
they  could  have  claimed  and  asserted  all  the  rights  against  the  partner- 
ship and  its  effects,  which  the  law  accords  to  partnership  creditors. 
The  bill  was  executed  in  the  firm  name,  with  the  knowledge  and  con- 
sent of  both  partners  ;  and  this  bound  the  firm.  Even  if  the  firm  name 
had  been  signed  by  one,  without  authority  from  the  other,  the  bill  was 
made  to  be  used,  and  was  used  in  borrowing  money ;  and  there  is  no 
evidence  that  Fitts  &  Co.  knew  the  use  to  which  the  rnoney  was  to  be 
applied.  We  are  not  prepared  to  say  the  debt  would  not  have  been  a 
partnership  'liability,  even  if  the  bill  had  been  executed  as  last  sup- 
posed. Knapp  v.  McBride,  7  Ala.  19  ;  Jemison  v.  Dearing,  41  Ala. 
283  ;  Cullum  v.  Bloodgood,  15  Ala.  34 ;  2  Brick.  Dig.  306,  §  103  ; 
Sprague  v.  Zunts,  18  Ala.  382. 

The  relation  between  partners  is  one  of  generous  confidence.  In  the 
absence  of  special  agreements  to  the  contrary,  the  law  constitutes  each 
the  agent  of  the  other,  and  the  representative  of  the  firm  in  the  con- 
duct of  all  the  ordinary  business  of  the  partnership.  The  act  of  one  is 
the  act  of  all.  If  it  be  a  mercantile  partnership,  a  sale  by  one  is  a  sale 
by  all.  And  a  payment  to  one  member  of  the  firm  discharges  the  debt, 
although  that  member  ma}"  misapply  or  squander  the  money.  It  is  not 
unfrequently  the  case,  that  one  partner  becomes  more  indebted  to  the 
firm  than  another.  He  may  use  more  of  the  income  and  effects  in  his 
personal  and  private  affairs,  —  may  overdraw  his  share,  or  may  antici- 
pate future  receipts  and  emoluments,  sometimes  with,  and  sometimes 
without  his  co-partner's  knowledge  or  permission.  In  either  case  his 
share  of  the  profits,  or  of  the  capital,  if  needed,  will  stand  incumbered 
by  a  lien,  to  make  good  such  deficit  to  his  co-partner ;  and  that  lien 
will  be  paramount  to  the  right  of  an}'  alienee  or  creditor  of  his.  "  In 
general,  when  a  sum  of  money  is  advanced  to  a  partner,  or  a  partner  is 
permitted  to  take  it  as  a  loan,  and  there  are  no  express  terms  agreed 
on,  his  profits  are  in  the  first  place  answerable  ;  and  if  they  are  insuffi- 
cient, his  share  of  the  stock  goes  to  discharge  this  balance  ;  and  if  that 
is  insufficient,  he  becomes  a  personal  debtor  for  the  balance."  Par- 
sons on  Partn.  241.     See  also  3  Kent's  Com.  40  et  seq. 

If,  instead  of  borrowing  the  firm's  credit  to  raise  money  on,  Mr. 


§  4.]  ADJUSTING   THE    EQUITIES    OF   PABTNEBS. 

Taylor  bad  used  its  money,  or  bad  hypothecated  its  bills-receivable, 

and  thus  realized  the  sum  of  them  on  his  private  account,—  and  this 
either  with  or  without  Mr.  Warren's  consent.  —  the  rule  above  declared 
would  have  applied  in  all  its  force,  and  Mr.  Warren  would  have  held  a 
lien.  So  if  there  had  been  a  partnership  debt  of  Tax  lor  &  Warren, 
and  Mr.  Warren  had  paid  it  out  of  his  private  funds,  this  would  have 
given  him  a  claim  ami  lien  against  Taylor's  interest  in  either  profits  or 
capital  of  the  partnership,  paramount  to  the  rights  of  creditors  of.  or 
purchasers  from  Taylor.  And  such  creditor  or  purchaser  would  have 
no  right  to  complain  ;  for  he  would  realize,  by  the  transaction,  all  that 
Taylor  could  claim.  He  would  be  entitled  to  no  more.  In  other 
words,  Mrs.  Benagh,  in  this  suit,  can  claim  what  Taylor  could  claim,  if 
he  were  suing  Warren,  no  more.  She  purchased  no  other  right.  S 
Donelson  r.  Posey,  and  other  authorities,  supra.  She  cannot  com- 
plain of  this  ;  for,  purchasing  a  partner's  interest  in  partnership  effi 
it  was  her  duty  to  inquire  of  the  other  partner,  how  the  account  .s: 
between  them. 

It  will  be  seen  that  we  have  placed  Warren's  superior  claim  on  the 
lien  which  the  law  gave  him  as  a  partner.  Hence,  it  was  not  necessai  y 
for  him  to  take  a  mortgage,  or,  taking  it,  to  have  it  recorded.  When 
he  incurred  the  liability  for  Taylor,  by  allowing  him  to  pledge  the 
credit  of  the  firm,  he  had  no  knowledge  or  notice  of  Mrs.  Benagh's 
claim.  We  need  not  and  do  not  decide,  that  his  claim  would  prevail 
over  Mrs.  Benagh's,  if,  before  the  firm  became  bound  to  Fitts  &  Co., 
he  had  been  notified  of  the  conveyance  to  her. 

We  hold  that,  after  taking  a  proper  account  between  the  partners, 
charging  Taylor  with  the  sum  paid  Fitts  &  Co.  and  interest,  as  so  much 
paid  to  and  for  him  by  Warren,  the  business  manager;  and  charging 
to  each  partner  all  proper  debits,  and  allowing  to  each  all  proper  credits, 
if  a  balance  be  found  due  to  Warren,  he  has  a  first  lien  on  the  partner- 
ship effects,  income,  and  capital,  for  its  payment.  This  is  his  share  in 
the  partnership  effects,  and  he  is  entitled  to  it,  before  Mrs.  Benagh  can 
take  anything  by  her  mortgage.  Any  balance  to  be  equally  divided 
between  Warren  and  Taylor,  the  interest  of  the  latter,  as  far  as  neces- 
sary, to  be  applied  to  the  payment  of  Mrs.  Benagh's  mortgage,  and 
interest  thereon  from  January  1,  1876.  Should  the  balance,  on  taking 
the  account,  be  found  in  favor  of  Taylor,  and  against  Warren,  then 
such  balance  to  be  a  first  lien  in  favor  of,  and  applied,  as  far  as  neces- 
sary, to  the  payment  of  Mrs.  Benagh's  mortgage  debt,  computed  as 
above.  Anj*  balance  of  partnership  effects  to  be  equally  divided  be- 
tween the  partners  ;  Taylor's  share  to  go  to  Mrs.  Benagh.  so  far  as 
necessary  to  extinguish  her  mortgage  claim.  If  anything  be  realized 
from  the  mortgage  property  in  Greene  County,  the  product  to  be  applied 
to  the  payment  of  Warren's  claim,  if  necessary,  after  exhausting  the 
partnership  effects.  Should  any  of  the  partnership  property  and  eh 
be  used  in  paying  a  balance  found  due  to  Warren,  and  should  an\  por- 
tion of  Mrs.  Benagh's  claim  remain  unpaid;  and  should  there  remain  a 


584  ACCOUNTING  AND   DISTRIBUTION.  [CHAP.  VIII. 

surplus  of  proceeds  of  the  Greene  County  mortgaged  property,  after 
paying  Warren's  claim,  then,  to  the  extent  that  Taylor's  interest  mort- 
gaged to  Mrs.  Benagh  is  applied  to  Warren's  claim,  she,  Mrs.  Benagh, 
is  subrogated  to  the  mortgage  rights  of  Warren  in  the  surplus  of  the 
proceeds  of  the  Greene  County  mortgaged  property. 

The  decree  of  the  Chancery  Court  is  reversed,  and  a  decree  is  here 
rendered,  in  accordance  with  the  principles  declared  above.  Costs  of 
appeal  to  be  paid  by  the  appellees. 


PENDLETON  v.  BEYER  et  al. 
94  Wis.  31 :  68  N.  W.  415.     1896. 

The  action  is  brought  for  the  settlement  of  the  accounts  of  a  part- 
nership which  has  already  been  dissolved.  It  is  not  stated  whether 
there  are  any  firm  creditors.  The  plaintiff  alleges  that  on  settlement 
there  will  be  found  a  large  sum  due  him.  He  demands  judgment  for 
the  recovery  of  such  sum  as  maybe  found  due  him  on  such  settlement. 
The  answer  denies  that  anything  will  be  found  due  the  plaintiff  on  set- 
tlement, and  alleges  that  plaintiff  is  insolvent,  and  sets  up  by  way  of 
counterclaim  several  claims' against  the  plaintiff,  owned  b}T  the  defend- 
ants severally  ;  some  relating  more  or  less  to  the  transactions  of  the 
partnership,  and  some  growing  out  of  matters  entirely  independent  of 
the  partnership  transactions.  The  answer  asks  that  these  several 
claims  be  set  off  against  whatever  sum  may  be  found  due  the  plaintiff, 
and  judgments  in  favor  of  the  defendants  severally  for  any  balance  in 
their  favor.  The  plaintiff  demurred  to  that  part  of  the  answer  which 
sets  up  these  alleged  counterclaims,  on  the  grounds  that  such  counter- 
claims are  not  proper  to  be  pleaded  in  such  an  action,  and  do  not  show 
a  cause  of  action  against  the  plaintiff.  The  demurrer  was  overruled, 
and  the  plaintiff  appeals. 

F.  F.  Wheeler  and  Bouck  &  Hilton,  for  appellant. 

Greene,  Vrooman,  &  Fairchild,  for  respondents. 

Newman,  J.  This  case  is  anomalous.  Strictly  speaking,  and  in  the 
ordinary  sense  of  the  word,  the  plaintiff  has  no  claim  to  enforce  against 
his  co-partners,  or  either  of  them.  If  the  defendants  owe  anything, 
they  owe  it  to  the  partnership,  and  not  to  the  plaintiff.  If  anything  is 
due  from  them,  it  is  due  to  the  partnership,  and  not  to  the  plaintiff. 
Sprout  v.  Crowley,  30  Wis.  187;  Smith  v.  Diamond,  86  Wis.  359. 
Hence  the  plaintiff  has,  strictly,  no  claim  against  the  defendants,  or 
either  of  them.  The  credits  of  the  firm  are  to  be  collected  and  applied 
to  the  payment  of  its  debts,  and  the  residue,  if  any,  is  to  be  distrib- 
uted among  the  partners  in  proportion  as  they  are  entitled  under  the 
partnership  agreement.  This  is  usually  done  through  the  instrumen- 
tality of  a  receiver.     Not  until  after  the  payment  of  firm  debts  and  the 


§  4]  ADJUSTING    THE    EQUITIES   OF   PARTNERS. 

ascertainment  of  the  residue  can  any  claim  arise  in  favor  of  any  part- 
ner. The  plaintiff,  then,  would  not  be  entitled  to  a  judgment  against 
the  defendants,  or  either  of  them,  for  his  share  is  not  due  from  them, 
but  from  the  partnership  fund.  It  is  a  fund  in  court,  to  be  distributed 
under  direction  of  the  court.  So,  too,  if  a  partner  owes  an  individual 
debt  to  his  co-partner,  that  in  no  way  concerns  the  firm,  and,  under 
ordinary  circumstances,  a  claim  for  such  a  credit  can  have  do  place  in 
an  action  to  dissolve  a  partnership  and  settle  up  its  affairs.  Smith  •. 
Diamond,  supra. 

It  is  manifest  that  the  claims  against  the  plaintiff  which  the  defend- 
ants propose  to  set  off  against  this  problematic  claim  of  the  plaintiff 
are  not  such  claims  as  are  authorized  to  be  Bel  off  by  either  the  Btatute 
of  set-offs  or  counterclaims.     Rev.  St.  §§  2656,   4264.     They  are.  at 
least,  not  claims  "  existing  in  favor  of  a  defendant  against   a  plaintiff 
between  whom  a  several  judgment  may  be  had  in  the  action."     But, 
while  set-off  is  altogether  of  statutory  origin,  equity  had  a  well  estab- 
lished jurisdiction  and  practice   regulating  set-offs  before   any  statute 
on  the  subject  was  passed.     In  general,  the  right  was  limited  to  matters 
"  connected  with  the  subject  of  the  action,"  and  could  only  lie  founded 
upon  matters  relied  upon  in  the  complaint.     The  debts  to  be  set  otf 
must  have  some  connection  with  each  other.     But  in  case   of  mutual 
demands,  and  in  cases  where  the  debt  due  the  patty  claiming  the  set-off 
is  so  situated  that  it  is  impossible  for  him  to  obtain  satisfaction  of  such 
debt  by  an  ordinary  suit  at  law  or  in  equity  to  recover  the  same,  a  court 
of  equity  would    compel  an  equitable  set-off  of  one  debt  against  the 
other.     And  the  insolvency  of  the  party  against  whom  the  set-off  is 
claimed  was  held  to  be  a  sufficient  ground  for  the  exercise  of  this  juris- 
diction  of  the  court  of  equity  in  allowing  a  set-off  in  cases  not  provided 
for  by  the  statute.     This  court  has   recognized  the   existence  of  that 
jurisdiction.     In    Spear  v.    Day,    5    Wis.    193,  the   court   say:     ••  In 
a  proper  case  a  court  of  equity  would  undoubtedly,   by  virtue  of  its 
general  jurisdiction,  apply  the  doctrine  of  set-off,  independently  of  the 
statute."     Many  times  it  has  referred    to  the  insolvency  of  the  party 
against  whom  the  set-off  is  claimed  as  being  a  sufficienl  ground   for  the 
exercise  of  that  jurisdiction.     Hiner  v.  Newton,  30  Wis.  Gin  ;   Linder- 
man  v.  Disbrow,  31  Wis.   465;  Body  v.  Jewsen,  33  Wis.    102  :  Selig- 
mann  v.  Heller,  69  Wis.  410;  Jones  v.  Piening,  85  Wis.  264.     The 
doctrine  is  held  in  many  cases.    A  few  will  be  mentioned.    Gay  V.  Gay, 
10  Paige,  369;  Ives  v.  Miller,  19  Barb.  196;  Cummings  v.  Morris.  25 
N.  Y.  625;  22  Am.  &  Eng.  Enc.  Law,  118    120,  and  cases  cited. 

This  case  seems  to  come  within  the  spirit  of  this  equitable  doctrine. 
The  plaintiff  is  insolvent.  If,  on  the  accounting  and  settlement  of  the 
partnership  matters,  anything  shall  be  found  due  the  plaintiff  from  the 
partnership,  and  it  should  be  paid  over  to  him,  it  would,  apparently. 
be  impossible  for  the  defendants  to  obtain  satisfaction  of  their  claims 
against  him.  Actions  at  law  upon  these  claims  would  be  futile.  So  it 
seems  that  justice    requires  whatever   sum    may    be    found   due    to    the 


586  ACCOUNTING   AND   DISTRIBUTION.  [CHAP.  VIII. 

plaintiff  shall  be  applied  to  the  payment  of  these  claims  of  the  defend- 
v  ants.  It  matters  little  whether  these  claims  shall  be  deemed  technically 
counterclaims.  They  are  deemed  at  least  proper  claims  to  be  sub- 
tracted from  such  amount  as  shall  be  found  due  the  plaintiff  on  such 
accounting,  and  it  was  proper  at  least  that  the  plaintiff  should  be  noti- 
fied of  the  defendants'  intention  to  ask  to  have  them  so  applied. 

Some  of  these  proposed  set-offs  are  against  the  plaintiff  and  another. 
Both  are  alleged  to  be  insolvent.  If  these  claims  are  several  as  well 
as  joint,  there  is  no  valid  reason  why  they  also  should  not  be  applied 
in  this  waj'  as  set-offs. 

The  order  of  the  Circuit  Court  is  affirmed. 


GYGER'S   APPEAL. 

62  Pa.  St.  73.     1869. 

Bill  by  retiring  partners  against  Gyger  for  an  account  of  the  part- 
nership assets,  which  passed  into  Gyger's  hands,  at  the  dissolution  of 
the  partnership,  upon  his  undertaking  to  collect  the  assets  and  pay  the 
balance  to  the  retiring  partners.  The  report  of  the  master  who  was 
appointed  to  state  the  account,  contained  the  following:  "The  de- 
fendant having  refused  to  account,  and  denied  his  liability  to  do  so, 
thus  rendering  necessary  this  suit  and  all  the  proceedings  therein  had, 
it  is  recommended  that  the  costs  of  this  as  well  as  of  the  previous  re- 
port of  the  master  be  imposed  upon  him."  Defendant  excepted  to  the 
report.  The  Court  of  Common  Pleas  of  Lancaster  County  overruled 
the  exceptions  and  defendant  appealed. 

O.  J.  Dickey  and  J.  E.  Iliester,  for  appellant. 

E.  W.  Shenk  and  D.  G.  Eshelmcm,  for  appellees. 

Sharswood,  J.  .  .  .  The  seventh  error  assigned  is,  that  the  court 
below  erred  in  charging  all  the  costs  upon  John  Gyger.  In  equity, 
costs  do  not  always  follow  a  decree  against  a  party.  They  rest  on  the 
sound  descretion  of  the  court,  and  are  to  be  awarded  or  refused, 
according  to  the  justice  of  each  particular  case.  3  Dan.  Ch.  Pr.  2.  It 
has  been  decided  that  wherever  an  account  is  intricate  or  doubtful, 
there  should  be  no  costs,  Pitt  v.  Page,  1  Bro.  P.  C.  1,  and  this  is  espe- 
cially applicable  to  partnership  accounts.  Colly,  on  Partn.  339.  In 
such  cases  the  costs  are  usually  divided,  or,  what  is  practically  the 
same  thing,  are  taxed  on  the 'partnership  effects.  Hutcheson  v.  Smith, 
5  Irish  Eq.  117  ;  Jones  v.  Morhead,  3  B.  Mon.  385  ;  Taylor  v.  Craw- 
thorne,  2  Dev.  Eq.  221.  There  were  conflicting  claims  in  this  case  on 
both  sides,  and  each  party  has  been  found  as  to  some  of  them  to  be  in 
the  wrong.  There  were  questions  of  real  doubt  and  difficulty  as  to 
the  amount  of  rent,  and  the  apportionment  of  expenses  as  well  as  to 
interest  and  compensation.  It  is  not  easy  to  see  how  they  could  have 
been  settled  without  a  suit  or  a  reference  to  mutual  friends.     We  can- 


§  4.]  ADJUSTING   THE    EQUITIES   OF    PARTNERS. 

not  give  so  much  weight  as  the  master  has  done  to  the  general  denial 
by  the  defendant  in  his  answer  of  liability  to  account.  It  was  nut  that 
which  rendered  the  suit  unavoidable.  The  costs  of  this  litigation  ap- 
pear, therefore,  to  be  a  necessary  expense  in  consequence  of  the  dis- 
putes between  the  parties  in  closing  up  the  concerns  of  this  co-partner- 
ship. It  is  an  item  in  the  account  of  profit  and  loss,  which  it  would 
have  been  much  better  for  all  the  partners  to  haw  saved  by  mutual 
concessions  or  otherwise,  but  which  cannot  in  equity  be  charged  upon 
one  of  them  exclusively.  Caldwell  v.  Zeiber,  7  Paige,  508.  We  are  of 
the  opinion  that  all  the  costs  in  the  court  below,  as  well  as  the  cost 
this  appeal,  should  be  paid  out  of  the  partnership  money  in  the  hands 
of  the  defendant,  John  Gyger,  and  that  he  should  be  allowed  credit 
therefor  in  his  account.1 


ROSS  v.   WHITE. 
[1S91]    3  Chy.  326. 

Lord  Herschell,  L.  C.  In  this  case,  upon  a  dissolution  of  part- 
nership, the  accounts  were  taken  under  an  order  of  the  court.  As  the 
result  of  these  accounts,  it  appears  that  there  is  a  sum  of  £649  due 
from  the  defendant  to  the  plaintiff,  that  being  a  sum  of  money  ad- 
vanced by  the  one  partner  to  the  partnership  which,  it  is  admitted, 
must  be  treated  as  a  debt ;  about  that  there  is  no  dispute.  Then  the 
finding  is  that  each  partner  had  originally  contributed  an  equal  sum, 
£1,750  ;  each  partner  had  drawn  out  some  part  of  the  capital  which  he 
had  contributed,  and  the  defendant  had  drawn  out  the  sum  of  £G01  in 
excess  of  the  sum  drawn  out  by  the  plaintiff. 

The  sole  question  which  arises  now  is  with  reference  to  the  payment 
of  the  costs  of  the  plaintiff  and  defendant  in  taking  these  accounts. 
Mr.  Renshaw  contends  for  the  principle  that  the  payment  of  these 
costs  ought  to  be  made  out  of  the  assets  after  the  discharge  of  any 
debts  due,  and  before  any  distribution  between  the  partners.  It 
appears  to  me  that  the  general  proposition  is  well  supported.  Hut  how 
is  the  matter  to  be  dealt  with  in  a  case  like  the  present,  where  the 
fund  in  court,  after  the  plaintiff  had  received  from  it  the  £*•'•  H)  anil  the 
£G00,  is  not  sufficient  to  pay  the  costs?  Mr.  Renshaw  contends  that 
the  costs  ought  to  be  paid  out  of  the  fund  before  the  plaintiff  is  allowed 
to  take  from  those  assets  the  £001.  I  cannot  think  that  this  view  is 
correct.  The  effect  of  the  transaction  is  this,  that  out  of  the  assets  of 
the  partnership  the  defendant  has  really  received  £601  in  excess  of 
what  the  plaintiff  has  received,  and  lie  claims  that  he  shall  take  his 
costs  out  of  the  fund  in  court  without  making  good  to  the  assets  of  the 


"o  s 


1  Only  so  much  of  the  statement  ami  opinion  as  beat  Oil  the  question  <>f  COStfl  DM 
been,  reprinted. 


588  ACCOUNTING   AND    DISTRIBUTION.  [CHAP.  VIII. 

partnership  that  which  he  has  taken  out  in  excess  of  the  sum  taken 
out  by  the  plaintiff.  I  think  he  cannot  do  so.  Before  he  can  claim  to 
take  his  costs  out  of  the  assets,  he  would  have  to  make  good  to  the 
assets  the  sum  which  is  found  due  from  him.  He  has,  in  truth,  in 
hand  assets  of  the  partnership,  or  what  are  to  be  considered  as  assets 
in  adjusting  the  accounts  between  the  plaintiff  and  defendant,  and 
out  of  those,  no  doubt,  he  can  pa}'  the  costs  ;  but  he  cannot,  retain- 
ing those  assets,  and  without  bringing  himself  as  regards  the  assets  of 
the  partnership  on  an  equalit}r  with  his  partner,  claim  to  take  his  costs 
out  of  the  assets  which  are  in  court  for  the  purpose  of  answering  the 
claims  against  the  partnership. 

For  these  reasons,  I  think  the  judgment  appealed  from  is  right,  and 
that  the  appeal  should  be  dismissed  with  costs. 

Lindley,  L.  J.  I  am  of  the  same  opinion.  I  was  struck  j'ester- 
da}-  with  what  Mr.  Renshaw  said  about  the  way  in  which  the  costs 
ought  to  be  paid.  I  thought  he  was  right,  and  I  still  think  he  was 
right,  provided  the  assets  are  as  they  ought  to  be.  If  his  client  will 
restore  to  the  assets  the  sum  in  his  hands,  then  his  argument  will  be 
quite  correct.  The  answer  to  his  case  is,  that  before  he  can  take  his 
costs  out  of  the  assets,  he  must  make  good  what  is  due  to  the  assets  ; 
otherwise  obvious  injustice  will  be  done. 

I  think,  therefore,  that  the  judgment  of  the  court  below  is  right,  and 
the  appeal  must  be  dismissed  with  costs. 

Davey,  L.  J.,  delivered  a  concurring  opinion. 


§  5.    The  Good-will  of  the  Firm  Business. 

WILLIAMS   et   al.    v.    FARRAND  et  al. 

88  Mich.  473 :  45  A.  L.  J.  392.     1891. 

McGrath,  J.  Complainants  and  defendants  had  been  for  some 
years  engaged  as  wholesale  druggists  on  Larned  Street  east,  in  the 
city  of  Detroit,  as  co-partners,  under  the  name  and  style  of  Farrand, 
Williams,  &  Co.  There  were  no  articles  of  co-partnership,  and  no  term 
fixed  for  which  the  partnership  was  to  continue.  Prior  to  the  taking 
of  the  annual  inventory  in  Januaiy,  1890,  defendant  Jacob  S.  Farrand 
expressed  to  complainant  Sheley  a  desire  to  dissolve  the  co-partnership. 
Mr.  Sheley  declined  to  sa^y  anything  until  the  annual  inventoiy  should 
be  taken,  and  the  business  of  the  year  settled  up.  On  the  25th  of 
January,  1890,  after  the  completion  of  the  inventoiy,  defendants  made 
a  proposition  in  writing  to  "  pa}'  Messrs.  Sheley  &  Brooks  for  then- 
interest  in  the  firm  of  Farrand,  Williams,  &  Co.,  for  the  amount  of  their 
interest,  being  fifty  thousand  dollars  ($50,000),  the  sum  of  sixty  thou- 
sand dollars  ($60,000),  or  they  will  take  for  their  interest,  the  amount 


§  5-J  THE    GOOD-WILL    OF   THE    FIRM    BUSINESS.  589 

being  one  hundred  thousand  dollars  ($100,000),  the  sum  of  one  hundred 

and  twenty  thousand  dollars  ($120,000),  the  sum  to  be  paid  in  ca 
or  in  notes  acceptable  to  the  parties  who  sell,  one  week  from  to-day, 
Saturday,  the  first  day  of  February  next.  The  .store  to  be  leased  to 
the  party  purchasing  for  a  term  of  live  years,  at  a  rent  of  eight  thou- 
sand dollars  ($8,000;  a  year,  and  the  warehouse  to  be  rented  to  the 
party  purchasing,  at  a  net  rental  of  six  per  cent  a  year  on  the  cost  of 
their  interest  therein." 

On  the  following  Monday  Mr.  Sheley  accepted  defendants'  offer  to 
sell,  and  on  the  1st  day  of  February  following  a  hill  of  sale  was  pre- 
pared, reciting,  among  other  things,  that  defendants,  in  consideration 
of  the  sum  of  $120,000,  paid  to  them  by  Alanson  Sheley,  party  of  the 
second  part,  "  have  bargained  and  sold  unto  the  said  party  of  the  second 
part  all  our  right,  title,  and  interest  in  the  within-mentioned  resources 
of  said  firm,  including  the  good-will  attendant  upon  the  busim  as."  This 
bill  of  sale  was  not  executed,  objection  being  made  to  the  clause, 
"including  the  good-will  attendant  upon  the  business."  and  a  Dew 
instrument  was  prepared,  reciting  that  defendants,  parties  of  the  first 
part,  "  for  and  in  consideration  of  the  sum  of  one  hundred  and  twenty 
thousand  dollars,  to  them  paid  by  Alanson  Shelej-,  of  the  second  part, 
have  bargained  and  sold,  and  by  these  presents  do  grant  and  convey, 
unto  the  said  party  of  the  second  part,  his  executors,  administrators,  or 
assigns,  all  our  right,  title,  and  interest  in  the  firm  of  Farrand,  Williams, 
&  Compan}-."  This  instrument  was  executed,  the  insurance  policies 
were  assigned  by  Farrand,  Williams,  &  Co.  to  Williams,  Sheley,  iV  Broi  iks, 
and  an  agreement  to  assume  and  pa}*  all  the  debts  of  the  old  firm  was 
executed  b}*  Williams,  Sheley,  <Sc  Brooks,  and  delivered  to  defendants. 
Defendants  afterward  formed  a  co-partnership  under  the  firm  name  of 
Farrand,  Williams,  &  Clark,  and  opened  a  wholesale  drug  establishment 
at  No.  32  Woodward  Avenue.  Complainants  adopted  the  name  and 
style  of  Williams,  Sheley,  &  Brooks,  posted  their  firm  name,  as  suc- 
cessors to  Farrand,  Williams,  &  Co.,  over  their  place  of  business  ;  had 
the  words  "  Williams,  Sheley,  &  Brooks,  Successors  to  "  printed  in  red 
ink  over  the  words  "Farrand,  Williams,  &  Co."  wherever  the  latter 
appeared  upon  letter-heads,  bill-heads,  labels,  and  on  other  stationery  ; 
advertised  themselves  in  the  newspapers  and  trade  journals  as  Williams, 
Sheley,  &  Brooks,  successors  to  Farrand,  Williams,  &  Co.,  and  sent  out 
circulars  to  the  trade  containing  not  only  their  firm  name,  but  the  nanus 
of  the  individual  members  of  the  new  firm.  1  hlYndants  also  extensively 
advertised  the  new  enterprise  through  the  same  mediums,  calling  special 
attention  to  the  names  of  the  members  of  the  new  linn,  their  long  con- 
nection with  the  drug  business,  and  the  dissolution  of  the  old  linn,  ami 
soliciting  trade. 

The  complainants  contend  that,  the  assignment  by  defendants  of  all 
interest  in  the  business  carried  with  it,  the  good-will  of  the  business, 
and  having  purchased  the  good-will  of  that  business,  the)'  are  entitled 
to  the  exclusive  use  of  the  old  linn  name  ;  that  while  defendants  uave 


590  ACCOUNTING   AND    DISTRIBUTION.  [CHAP.  YIU 

the  rio-ht  to  engage  in  the  same  line  of  business,  they  have  not  the  right 
to  such  a  collocation  of  their  own  names  as  will  produce  confusion, 
attract  customers,  and  secure  orders,  letters,  and  goods  intended  for  the 
old  firm  ;  that  defendants  have  no  right  to  simulate  their  labels,  to  solicit 
their  customers,  or  entice  away  their  employees.  "Good-will"  has 
been  defined  by  this  court  to  be  "  the  favor  which  the  management  of 
a  business  wins  from  the  public,  and  the  probability  that  old  customers 
will  continue  their  patronage."  Chittenden  v.  Whitbeck,  50  Mich.  401. 
Lord  Eldon,  in  Cruttwell  v.  Lye,  17  Ves.  335,  defined  it  as  simply  the 
probability  that  old  customers  will  resort  to  the  old  place. 

The  following  propositions  must  be  regarded  as  established  by  the 
clear  weight  of  authority  : 

1.  Though  a  retiring  partner  may  have  assigned  his  interest  in  the 
partnership  business,  including  the  good-will  thereof,  to  his  co-partner, 
he  may,  in  the  absence  of  an  express  agreement  to  the  contrary,  engage 
in  the  same  line  of  business  in  the  same  locality,  and  in  his  own  name. 

2.  He  may,  by  newspaper  advertisements,  cards,  and  general  circu- 
lars, invite  the  general  public  to  trade  with  him,  and  through  the  same 
mediums  advertise  his  long  connection  with  the  old  business,  and  his 
retirement  therefrom. 

3.  He  will  not  be  allowed  however  to  use  his  own  name,  or  to  adver- 
tise his  business,  in  such  a  way  as  to  lead  the  public  to  suppose  that  he 
is  continuing  the  old  business ;  hence  will  not  be  allowed  to  advertise 
himself  as  its  successor. 

4.  The  purchaser  will  not,  in  the  absence  of  an  express  agreement, 
be  allowed  to  continue  the  business  in  the  name  of  the  old  firm. 

5.  That  no  man  has  a  right  to  sell  or  advertise  his  own  business  or 
goods  as  those  of  another,  and  so  mislead  the  public,  and  injure  such 
other  person. 

In  Myers  v.  Buggy  Co.,  54  Mich.  215,  A.,  B.,  and  C.  had  been  carry- 
ing on  business  as  co-partners  at  Kalamazoo,  under  the  name  and  style 
of  "  The  Kalamazoo  Wagon  Company."  A.,  B.,  and  C.  sold  to  com- 
plainant "all  their  interest  in  the  property,  money,  assets,  and  good- 
will," etc.,  in  and  to  their  business.  After  such  sale  complainant's 
assignors  formed  a  corporation  under  the  name  of  "  The  Kalamazoo 
Buggy  Companv  ;  "  pitched  their  plant  in  the  same  locality  ;  commenced 
the  manufacture  of  the  same  class  of  goods  ;  issued  circulars  to  the 
trade,  with  descriptive  cuts  of  the  same  character  and  appearance  as 
those  contained  in  complainant's  circulars,  and  advertised  their  place  of 
business  as  being;  in  the  same  localitv.  In  that  case  the  name  of  "  The 
Kalamazoo  Wagon  Company  "  was  an  assumed  name.  The  onhy  dis- 
tinctive feature  in  the  name  adopted  by  defendant  was  the  use  of  a 
word  of  similar  meaningr  to  that  for  which  it  had  been  substituted.  The 
defendants  were  not  using  their  own  names.  It  was  a  pure  case  of 
pirac\r,  and  the  facts  clearly  indicated  an  intention  to  deceive  the  public. 
As  was  said  in  Burgess  v.  Burgess,  3  De  Gex,  M.  &  G.  896  :  "  Where 
a  person  is  selling  goods  under  a  particular  name,  and  another  person, 


§5.]  THE    GOOD-WILL   OF   THE    FIRM    BUSINESS.  591 

not  having  that  name,  is  using  it,  it  may  be  presumed  that  he  so  uses  it  to 
represent  the  goods  sold  by  him  as  the  goods  of  the  person  whose  name 
he  uses  ;  but  where  the  defendant  sells  under  his  own  name,  and 

it  happens  that  the  plaintiff  has  the  same  nam.',  it  does  not  follow  that 
defendant  is  selling  his  goods  as  the  goods  of  the  plaintiff."  In  Lee  u. 
Haley,  L.  R.  5  Ch.  App.  L55,  plaintiff  had  been  doing  business  at  No.  22 
Pall  Mall,  under  the  artificial  name  of  "Guinea  Coal  Company.'1  Defend- 
ant, who  had  been  their  manager,  set  up  a  rival  business  under  the  name 
of  "  Pall  Mall  Guinea  Coal  Company,"  at  45  Pall  Mall.  His  envelopes 
and  business  cards  were  printed  in  such  a  way  as  to  resemble  the 
plaintiff's.  In  Glenny  y.  Smith.  2  Drew.  &  S.  ■!:!;.  defendant  had  been 
in  plaintiff's  employ,  and  started  in  business  on  his  own  account.  <  >ver 
his  shop  he  had  his  own  name,  Frank  P.  Smith,  printed  in  large,  black 
letters  on  a  white  ground,  but  on  the  brass  plates  in  the  window-  of  his 
shop  he  had  engraved  the  word  lt  from"  in  small  letters,  and  the  words 
"Thrasher  &  Glenny"'  (the  name  of  plaintiff's  linn)  in  large  letfo 
He  had  an  awning  also  in  front  of  his  shop,  which,  when  let  down. 
would  cover  his  own  name,  and  expose  only  the  name  of  the  plaintiff's 
firm.  The  court  held  that  defendant  was  deceiving  the  public,  and  an 
injunction  was  issued.  Croft  v.  Day,  7  Beav.  8  1  ;  Levy  v.  Walker,  10 
Ch.  Div.  438;  Turton  v.  Turton,  42  Id.  128;  Hookham  v.  P 
L.  R.  8  Ch.  App.  91  ;  Meneely  v.  Meneely,  62  N.  Y.  431  ;  Fullwood  w. 
Fullwood,  9  Ch.  Div.  1 76. 

6.  That  when  an  express  contract  has  been  made  to  remain  out  of 
business,  or  for  the  use  b}*  a  purchaser  of  a  fictitious  name,  or  a  trade 
name,  or  a  trade-mark,  the  court  will  enjoin  the  continued  violation  of 
such  agreement.  In  Grow  v.  Seligman,  47  Mich.  f!07,  defendant  had 
carried  on  the  clothing  business  at  Bay  City,  under  the  name  and  style 
of  "  Little  Jake,"  and  sold  out  to  complainant,  and  expressly  convej'ed 
the  right  to  use  the  name  and  style  of  "  Little  Jake,"  and  agreed  that 
he  would  not  again  engage  in  that  business  at  Bay  City,  and  defendant 
was  enjoined  from  violating  his  agreement.  In  Shackle  v.  Laker.  1  I 
Ves.  468,  defendant  agreed  that  he  would  not,  for  the  space  of  ten 
years,  carry  on  or  permit  any  other  person  to  carry  on  the  same  busi- 
ness in  Middlesex,  London,  or  Westminster,  and  thai  he  would  use  his 
best  endeavors  to  assist  plaintiff  and  procure  customers  for  him.  In 
Hitchcock  v.  Cokcr,  6  Adol.  &  E.  438,  Coker  had  agreed  to  enter  the 
services  of  plaintiff,  and  that  he  would  not  at  any  time  thereafter  engage 
in  the  business  in  which  his  employer  was  engaged.  To  the  same  effeel 
are  Beal  v.  Chase,  31  Mich.  490 ;  Doty  y.  .Martin,  32  Id.  162 ;  Burck- 
hardt  v.  Burckhardt,  36  Ohio  St.  261  ;  Vernon  v.  Ilallam.  8  I  Ch.  Div. 
752  ;  Tode  v.  Gross,  28  N.  E.  Hep.  (N.  Y.  App.  |  469. 

7.  That  an  assignment  of  all  the  stock,  property,  and  effects  of  a 
business,  or  the  exclusive  right  to  manufacture  a  given  article  carries 
with  it  the  exclusive  right  to  use  a  fictitious  name  in  which  such  busi- 
ness has  been  carried  on,  and  such  trade-marks  and  trade-names  as 
have  been  in  use  in  such  business.     The.-,''  incidents  attach  to  the  busi' 


592  ACCOUNTING   AND    DISTRIBUTION.  [CHAP.  VIII. 

ness  or  right  of  manufacture,  and  pass  with  it.  Courts  have  uniformly 
held  that  a  trade-mark  has  no  separate  existence  ;  that  there  is  no 
property  in  words  as  detached  from  the  thing  to  which  they  are  applied, 
and  that  a  convej'ance  of  the  thing  to  which  it  is  attached  carries  with 
it  the  name.  Dixon  Co.  v.  Guggenheim,  2  Brewst.  321  ;  Lockwood  v. 
Bostwick,  2  Dal}',  521  ;  Derringer  v.  Plate,  29  Cal.  292.  In  Gage  v. 
Publishing  Co.,  11  Out.  App.  402,  Gage  and  Beatty  were  co-partners, 
and,  among  other  things,  were  engaged  in  publishing  "  Beatty's  Head- 
line Copy-Books."  Beatty  sold  out  to  Gage  all  his  interest  in  the 
business,  and  engaged  in  the  drug  business.  Gage  continued  for  some 
years  the  sale  of  the  copy-books,  when  Beatty  licensed  defendant  to 
publish  "Beatty's  New  and  Improved  Headline  Copy-Books."  In 
Hoxie  v.  Chaney,  143  Mass.  592,  Hoxie  and  Chaney  were  co-partners, 
engaged  in  the  manufacture  of  soaps,  two  brands  of  which  were  known 
as  "  Hoxie's  Mineral  Soap  "  and  "  Hoxie's  Pumice  Soap."  These  were 
simply  trade  names  by  which  the  articles  were  known,  and  the  right  to 
use  them  passed  with  the  right  to  manufacture  the  articles.  In  Cement 
Co.  v.  Le  Page,  147  Mass.  206,  Brooks  and  Le  Page,  as  co-partners, 
sold  to  plaintiff  the  good- will  of  their  business  and  the  right  to  use  their 
trade-marks.  They  were  engaged  in  the  manufacture  of  glues.  Their 
light  glues  they  named  "  Le  Page's  Liquid  Glues."  The  court  held 
that  the  right  to  use  the  name  by  which  the  articles  were  known  to  the 
trade  passed  with  the  right  to  manufacture  the  articles.  In  Merry 
v.  Hooper,  111  N.  Y.  415,  the  parties  were  forrnerby  partners.  Hooper 
sold  to  Merry,  but  afterward  undertook  to  use,  certain  trade-marks,  viz., 
the  "  Lion  Brand  "  and  "  Phoenix  Brand,"  but  the  court  held  that  these 
trade-marks  passed  to  the  assignee.  In  Hall  v.  Barrows,  4  De  Gex, 
J.  &  S.  150,  the  firm  had  marked  the  chief  part  of  their  output  of  iron 
with  the  initial  letters  of  their  partnership  name,  "  B,  B.,  &  II.,"  sur- 
mounted by  a  crown,  and  the  court  held  the  letters  and  crown  had 
become  a  trade-mark,  and  as  such  should  be  included  as  a  subject  of 
value.  Brown,  Trade-Marks,  358;  Millington  v.  Fox,  3  Mylne  &  C. 
338-352  ;  Myers  v.  Buggy  Co.,  54  Mich.  215  ;  Sohier  v.  Johnson,  111 
Mass.  242;  Shipwright  v.  Clements,  19  Wkly.  Rep.  599;  Rogers  v. 
Taintor,  97  Mass.  291. 

8.  A  corporate  name  is  regarded  as  in  the  nature  of  a  trade-mark, 
even  though  composed  of  individual  names,  and  its  simulation  ma}-  be 
restrained.  After  adoption  it  follows  the  corporation.  Statutes  pro- 
viding for  the  organization  of  corporations  usually  prohibit  the  adoption 
of  the  same  name  by  the  two  companies.  Holmes  v.  Manufacturing  Co., 
37  Conn.  278.  These  propositions  are  sustained  by  a  long  line  of 
authorities,  but  in  none  of  the  cases  cited  does  the  question  hinge  upon 
a  grant  of  good-will.  Complainants  insist  however  that  a  grant  of 
good-will  may  be  implied,  and  when  express  or  implied,  it  imposes 
certain  restraints  upon  the  vendors,  viz.  :  (1)  That  they  cannot  after- 
ward personally  solicit  customers  of  the  old  firm,  and  (2)  that  they  are 
restricted  in  the  use  that  may  be  made  of  their  own  names. 


§  5.]  THE    GOOD-WILL   OF   THE   FIRM    BUSINESS. 

I.  The  doctrine  that  a  retiring  partner,  who  has  conveyed  Ins  inter<  st 
in  an  established  business,  whether  the  good-will  be  included  or  nut, 
cannot  personally  solicit  the  customers  of  the  old  firm,  has  no  support 

in  principle.  A  retiring  partner  conveys,  in  addition  to  his  interest  in 
the  tangible  effects,  simply  the  advantages  that  an  established  busii 
possesses  over  a  new  enterprise.  The  old  business  is  an  assured  suc- 
cess, the  new  an  experiment.  The  old  business  is  a  going  busii 
and  produces  its  accustomed  profits  on  the  day  after  the  transfer.  It  is 
capital  already  invested  and  earning  profits.  The  continuing  partner 
gets  these  advantages.  The  new  business  must  be  built  up.  The 
capital  taken  out  of  the  old  concern  will  earn  nothing  for  months, 
in  all  probability  the  first  year's  business  will  show  loss  instead  of 
profit.  For  a  time  at  least  it  is  capital  awaiting  investment,  or  invested, 
but  earning  nothing.  The  retiring  partner  takes  these  chances  or  dis- 
advantages. He  does  not  agree  that  the  benefit  derived  from  his  con- 
nection with  that  business  shall  continue.  He  does  not  agree  that  the 
old  business  shall  continue  to  have  the  benefit  of  his  name,  reputation, 
or  service  ;  nor  does  he  guarantee  the  continuance  of  that  patron 
which  ma}' have  been  attracted  by. his  name  or  reputation.  lie  does 
not  pledge  a  continuance  of  conditions.  He  takes  out  of  the  busii 
an  element  that  has  contributed  to  the  success  of  that  business.  lie 
sells  only  those  advantages  and  incidents  which  attach  to  the  property 
and  location,  rather  than  those  which  attach  to  the  person  of  the  vendor. 
Pars.  Partn.  *409.  He  sells  only  so  much  of  the  custom  as  will  continue 
in  spite  of  his  retirement  and  activity.  He  sells  probabilities,  not  assur- 
ances. It  is  urged  that  b}'  the  solicitation  of  the  customers  of  the  old 
firm  he  is  endeavoring  to  impair  the  value  of  that  which  he  has  sold, 
but  every  act  of  his  in  the  direction  of  the  establishment  of  the  new 
business  tends  to  divert  the  customers  of  the  old  firm.  The  right  to 
enter  into  the  same  line  of  business  in  the  same  locality,  —  next  door, 
if  you  please,  —  to  advertise  his  former  connection  with  the  old  business, 
and  to  solicit  generally  the  patronage  of  the  public,  is  conceded  by  the 
clear  weight  of  authority.  The  exercise  of  these  rights  necessarily 
involves  the  diversion  of  custom  to  the  new  firm.  Does  not  the  right 
to  again  engage  in  the  same  line  of  business  include  all  of  the  incidents 
of  that  right?  Upon  what  principle  is  the  line  arbitrarily  drawn  at  the 
personal  solicitation  of  the  customers  of  the  old  firm?  The  right  to 
engage  in  business  in  his  own  name  attaches  to  the  retiring  partner, 
and  unless  expressly  so  agreed,  there  is  no  restraint  upon  that  right.  In 
the  present  case,  Jacob  S.  Farrand  had  been  at  the  head  of  the  old 
house  for  half  a  century.  His  name  could  not  be  subsequently  used  in 
the  same  line  of  business  without  attracting  the  attention  of  the  entire 
trade,  nor  without  affecting  the  probabilities  of  a  continuance  of  the 
patronage  of  the  old  house.  lb'  gave  no  hint  that  he  did  not  intend  to 
again  engage  in  business.  All  of  the  circumstances  pointed  in  the 
direction  of  a  new  business.  The  retirement  was  not  of  Jacob  S.  Far- 
rand alone,  but  of  his  son-in-law  and  .Mr.  Clark  also.      The   proposition 

3 


594  ACCOUNTING  AND   DISTRIBUTION.  [CHAP.  VIII. 

made  to  complainants  was  not  only  to  sell,  but  to  buy.  In  Ginesi  v. 
Cooper,  14  Ch.  Div.  596,  the  court  went  so  far  as  to  insist  that  a  retir- 
ing partner  had  no  right  to  deal  with  the  customers  of  the  old  firm  ;  but 
that  rule  would  operate  as  a  restriction  upon  the  public,  and  the  case  is 
without  support  in  that  respect.  In  Labouchere  v.  Dawson,  L.  R.  13 
Eq.  322,  the  court  say  that  a  retiring  partner  who  sells  the  good-will  of 
a  business  is  entitled  to  engage  in  a  similar  business,  may  publish  any 
advertisement  he  pleases  in  the  papers,  stating  that  he  is  carrying  on 
such  a  business  ;  he  may  publish  circulars  to  all  the  world,  and  say  that 
he  is  carrying  on  such  a  business,  but  he  is  not  entitled,  bjT  private 
letter,  or  by  visit  by  himself  or  agent,  to  solicit  the  customers  of  the 
old  firm.  But  in  Pearson  v.  Pearson,  27  Ch.  Div.  145,  Labouchere  v. 
Dawson  is  expressly  overruled.  The  court  say:  "The  case  of  the 
plaintiff  is  founded  on  contract,  and  the  question  is,  what  are  his  rights 
under  the  contract?  There  is  no  express  covenant  not  to  solicit  the 
customers  of  the  old  business,  but  it  is  said  that  such  a  covenant  is  to 
be  implied.  I  have  a  great  objection  to  straining  words  so  as  to  make 
them  imply  a  contract  as  to  a  point  upon  which  the  parties  have  said 
nothing,  particularly  when  it  is  a  point  which  was  in  their  contempla- 
tion. It  is  said  that  there  was  a  sale  of  the  good-will.  I  think  that 
there  was,  taking  good-will  as  defined  by  Lord  Eldon  in  Cruttwell  v. 
Lye,  17  Ves.  335.  The  purchaser  has  a  right  to  the  place  and  a  right 
to  get  in  the  old  bills ;  so  the  purchaser  gets  the  good-will,  as  defined 
by  Lord  Eldon.  But  the  term  '  good-will '  is  not  used,  and  when  a  con- 
tract is  sought  to  be  implied  we  must  not  substitute  one  word  for 
another.  But  suppose  the  word  did  occur,  what  is  the  effect  of  the  sale 
of  '  good-will.'  It  does  not,  per  se,  prevent  the  vendor  from  carrying 
on  the  same  class  of  business."  Vernon  y.  Hallam,  34  Ch.  Div.  752, 
held  that  a  covenant  by  a  vendor  of  a  business,  including  the  good-will 
thereof,  that  he  would  not  for  a  term  of  years  cany  on  the  business  of 
a  manufacturer,  either  by  himself  or  jointly  with  an}'  other  person, 
under  the  name  or  style  of  J.  H.  or  H.  Bros,  (the  name  of  the  business 
which  he  had  sold),  is  not  a  covenant  that  the  vendor  would  not  carry 
on  business  as  a  manufacturer,  but  against  using  a  particular  name  or 
style  in  trade,  and  the  injunction  was  granted  to  restrain  a  breach  of 
that  covenant.  The  court  sa}' :  k '  When  a  vendor  sells  his  business, 
and  commences  a  similar  business  in  the  same  locality,  and  solicits 
customers  of  the  old  house  to  deal  with  him,  the  court,  following  the 
decision  in  Pearson  v.  Pearson,  and  being  of  opinion  that  the  case  of 
Labouchere  v.  Dawson  had  been  overruled  by  the  decision  in  that  case, 
refused  to  grant  an  injunction  to  restrain  such  solicitation."  Leggott 
v.  Barrett,  15  Ch.  Div.  306  ;  Ginesi  v.  Cooper,  14  Id.  596,  and  a  number 
of  other  cases  cited,  follow  Labouchere  v.  Dawson. 

The  correct  rule  is,  we  think,  laid  down  in  Cottrell  v.  Manufacturing 
Co.,  54  Conn.  138.  The  court  say:  "  Cottrell  did  not  require  Bab- 
cock  to  agree,  and  the  latter  did  not  agree,  to  abstain  from  the  manu- 
facturing of  printing-presses.      By  purchasing  the  good-will  merely, 


§  5.]  THE    GOOD-WILL   OF   THE    FIRM    BUSINESS.  595 

Cottrell  secured  the  right  to  conduct  the  old  business  at  the  old  stand, 
•with  the  probability  in  his  favor  that  old  customers  would  continue  to 
go  there.      If  he  desired  more  he  should  have  secured  it  by  positive 
agreement.     The  matter  of  good-will  was  in  his  mind.     Presumptively 
he  obtained  all  that  he  desired.     At  any  rate,  the  express  contract  is 
the  measure  of  his  right;  and  since  that  conveys  a  good-will  in  terms, 
but  says  no  more,  the  court  will  not  upon  inference  deny  to  the  vendor 
the  possibility  of  successful  competition  by  all  lawful  means  with  the 
vendee  in  the  same  business.     Xo  restraint  upon  trade  may  rest  upon 
inference.     Therefore,  in  the  absence  of  any  express  stipulation  to  the 
contrary,  Babcock  might  lawfully  establish  a  similar  business  at  the 
next  door,  and  by  advertisement,  circular,  card,  and  personal  solicita- 
tion invite  all  the  world,  including  the  old   customers  of  Cottrell   & 
Babcock,   to    come   there    and    purchase  of  him ;   being    very   careful 
always  when  addressing  individuals  or  the  public,  either  through  the 
eye  or  the  ear,  not  to  lead  any  one  to  believe  that  the  presses  which  he 
offered  for  sale  were  manufactured  by  the  plaintiffs,  or  that  he  was  the 
successor  to  the  business  of  Cottrell  &  Babcock,  or  that  Cottrell  was 
not  carrying  on  the  business  formerly  conducted  by  that  firm.     That  he 
may  do  this  by  advertisements  and  general  circulars  courts  are  sub- 
stantially agreed,  we  think.     But  some  have  drawn  the  line  here,  and 
barred  personal  solicitation.     They  permit  the  vendor  of  a  good-will  to 
establish  a  like  business  at  the  next  door,  and  by  the  potential  instru- 
mentalities of  the  newspapers  and  general  circulars  ask  old  customers 
to  buy  at  the  old  place,  and  withhold  from  him  only  the  instrumentality 
of  highest  power,  viz.,  personal  solicitation.     To  deny  him  the  use  of 
the  newspapers  and  general  circulars  is  to  make  successful  business 
impossible,  and  therefore  is  to  impose  an  absolute  restraint  upon  the 
right  to  trade.      This  the  courts  could  not  do,  except  upon  express 
agreement.     But  possibly  the  old  customers  might  not  see  these,  and 
in  some  cases  the  courts  have  undertaken  to  preserve  this  possibility 
for  the  advantage  of  the  vendor,  and  found  a  legal  principle  upon  it. 
Other  courts  have  been  of  the  opinion  that  no  legal  principle  can  be 
made  to  rest  upon  this  distinction;  that  to  deny  the  vendor  personal 
access  to  old  customers  even  would  put  him  at  such  disadvantage  in 
competition  as   to  endanger  his  success;    that  they  ought  not  upon 
inference  to  bar  him  from  trade,  either  totally  or  partially,  and  thai  all 
restraint  of  that  nature  must  come  from  his  positive  agreement     And 
such,  we  think,  is  the  present  tendency  of  the  law."     Cood  will  may 
be  said  to  be  those  intangible  advantages  or  incidents  which  are  imper- 
sonal, so  far  as  the  grantor  is  concerned,  and  attach  to  the  thing  con- 
veyed.    Where  it  consists  of  the  advantages  of  location,  it  follow 
assignment  of  the  lease  of  location.      Again,  it  may  not  depend  at  all 
upon  location,  as  in  the  case  of  a  newspaper,  and   it  would  follow  an 
assignment  of  all  interest  in  the  plant,  property,  effects,  and  business. 
A  partnership  name  may  become  impersonal,  after  the  death  of  the 
partners,  and  it  is  then  treated   like  a  fictitious  or  corporate   nan..'.     A 


596  ACCOUNTING   AND   DISTRIBUTION.  [CHAP.  VIII. 

surname  may  become  impersonal  when  it  is  attached  to  an  article  of 
manufacture,  and  becomes  the  name  by  which  such  article  is  known  in 
the  market,  and  the  right  to  use  the  name  may  in  consequence  follow 
a  grant  of  the  right  to  manufacture  that  article,  or  a  sale  of  the  busi- 
ness of  manufacturing  such  article  ;  and  where  the  right  to  manufac- 
ture is  exclusive,  the  right  to  the  use  of  the  name  as  applied  to  that 
article  becomes  likewise  exclusive.  It  appears,  however,  that  in  the 
first  bill  of  sale  which  was  prepared  the  words,  "  including  the  good- 
will attendant  upon  such  business,"  were  inserted,  but  were  objected 
to,  stricken  out,  and  a  new  bill  of  sale  prepared,  omitting  any  reference 
to  good-will.  But  it  is  said  that  this  clause  was  objected  to  because,  in 
the  opinion  of  the  objector,  it  might  preclude  him  from  engaging  in  the 
same  business,  whereas,  under  the  law,  he  would  have  such  a  right  had 
the  clause  remained.  The  only  use,  howrever,  which  complainants  now 
propose  to  make  of  the  clause,  treated  as  a  part  of  the  instrument,  is 
to  restrict  that  right  to  engage  in  business  by  taking  away  one  of  its 
incidents.  Adopting  the  language  used  in  Churton  v.  Douglas,  Johns. 
Eng.  Ch.  174,  with  reference  to  the  right  of  plaintiff  to  continue  the  use 
of  the  old  firm  name,  "I  think  the  defendant  is  fully  entitled  to  the 
benefit  of  the  observation  that  it  was  proposed  to  him  to  insert  such  a 
provision,  and  that  he  refused  it.  I  think,  therefore,  that  this  case 
goes  a  step  higher  than  the  authorities,  and  the  defendant  is  entitled  to 
put  his  case  in  the  highest  possible  form  with  regard  to  his  right "  to 
engage  in  the  same  line  of  business. 

II.  The  next  question  relates  to  the  use  by  defendants  of  the  firm 
name  of  Farrand,  Williams,  &  Clark.  It  is  clear  that  complainants 
have  no  right  to  continue  their  business  under  the  old  firm  name.  The 
rule  that  upon  a  dissolution  of  a  firm  neither  partner  has  the  right  to 
use  the  firm  name,  as  well  as  the  other  rule  that  a  retiring  partner  has 
no  right  to  use  the  old  firm  name,  are  both  subject  to  the  exception  that 
a  person  has  the  right  to  use  his  own  name  unless  he  has  expressh* 
covenanted  otherwise.  In  case  A.  B.  should  sell  out  his  business  to 
C.  D.,  in  the  absence  of  a  grant  to  C.  D.  of  the  right  to  use  the  name 
of  A.  B.,  or  an  agreement  to  the  contrary,  is  there  anj*  doubt  but  that 
A.  B.  would  have  the  right  to  engage  in  the  same  line  of  business  in 
his  own  name?  In  that  case,  such  a  probability  would  naturally  sug- 
gest itself  to  C.  D.,  and  if  he  desired  to  get  the  advantage  of  A.  B.'s 
abstinence  from  business,  he  would  insist  upon  an  agreement  to  that 
effect.  In  the  present  case  Mr.  Farrand's  name  had  been  at  the  head 
of  the  firm  name  for  near!}'  half  a  century,  and  the  name  of  another  of 
the  retiring  members  corresponded  with  the  011I3*  other  surname  used 
in  the  old  firm  name.  It  must  have  been  evident  to  complainants  that 
in  any  event  the  name  of  the  new  firm  would  be  similar  to  that  of  the 
old  firm.  If  complainants  desired  an}^  protection  against  such  a  use  of 
the  names  of  the  retiring  members,  they  should  have  inserted  a  provi- 
sion to  that  effect  in  the  bill  of  sale.  The  right  to  continue  the  use  of 
a  firm  name,  as  well  as  a  restriction  upon  the  use  by  a  retiring  partner 


§  5.]  THE    GOOD-WILL    OF   THE    FIRM    BUSINESS.  597 

of  his  own  name,  are  proper  subjects  of  bargain,  sale,  and  agreement. 
Here  neither  have  been  purchased.     Complainants  have  purchased  the 

business  of  the  old  firm.  They  have  the  right  to  advertise  themselves 
as  succeeding  to  and  continuing  that  business.     The  exercise  of  such 

a  right  does  not  conflict  with  any  right  reserved  by  defendants.  Com- 
plainants, by  such  a  holding  out, commit  no  fraud,  misrepresentation,  or 
deception.  They  publish  the  truth  onlv.  Defendants  have  the  ri-dit 
to  use  their  own  names,  or  any  collection  of  their  own  names.  They 
have  not  adopted  the  old  firm  name,  although  it  would  have  been 
appropriate.  They  have  adopted  no  fictitious  name.  There  is  no 
deception  in  the  use  of  the  name  adopted  by  them.  The  busini  ss  of 
the  old  firm  is  a  separate  and  distinct  business.  Defendants  have  no 
right  to  advertise  their  business  as  a  continuation  of  the  old  linn  busi- 
ness. They  are  subject  to  the  rule  already  laid  down,  that  no  man  has 
the  right  to  sell  or  advertise  his  own  goods  or  busim 
another,  and  so  mislead  the  public  and  injure  such  other  person.  In 
Lathrop  v.  Lathrop,  47  How.  Pr.  532,  after  dissolution.  .1.  Lathrop 
formed  a  co-partnership  with  one  Tisdale,  and  adopted  the  name  of  .1. 
Lathrop  &  Co.,  which  was  the  style  of  the  old  firm.  Held,  that  in  the 
absence  of  any  covenant  with  his  late  partner,  he  might  legally  do  so. 
In  Reeves  v.  Denicke,  12  App.  Pr.  (n.  s.)  92,  the  court  say  :  ••  In  this 
case  the  firm  name  was  not  sold  or  transferred  to  defendants  as  con- 
stituting a  part  of  the  partnership  property,  nor  did  the  sale,  in  terms 
or  by  necessary  implication,  include  the  good-will,  and  it  is,  therefore, 
unneeessaiy  to  determine  whether  the  partnership  name  was  a  pail  of 
such  good-will.  There  was  no  restraint  upon  a  retiring  partner  hold- 
ing him  from  engaging  in  a  similar  business,  and  he  violated  no  obli- 
gation by  forming  a  new  firm  under  his  own  name,  and  transacting  a 
business  in  all  respects  like  that  he  had  released  to  them,  it  is  quite 
clear  that  defendants  acquired  no  right  to  continue  the  use  of  the 
partnership  name  of  the  old  firm.  If  the  good  reputation  of  that  firm 
was  intended  to  pass  and  become  a  part  of  defendant's  new  firm,  it 
should  have  been  provided  for  in  the  conveyance.  That  it  was  DOl 
intended  it  should  pass  is  evident  from  the  omission  to  include  it." 
Seed  Co.  v.  Dorr,  70  Iowa,  481;  ]>assett  v.  Percival,  5  Allen.  845; 
McGowan  v.  McGowan,  22  Ohio  St.  370.  In  Turton  v.  Tin  ton,  42 
Ch.  Div.  128,  although  there  were  no  contract  relations  between  the 
parties,  the  court  say:  "No  one  can  have  the  light  to  represent  his 
goods  as  the  goods  of  another;  therefore  if  a  man  uses  his  own  name, 
that  is  no  prima  facie  case,  but  if  he.  besides  using  his  own  name. 
does  other  things  which  show  that  he  is  intending  to  represent,  and  i-, 
in  point  of  fact,  making  his  goods  represent,  the  goods  of  another,  then 
he  is  so  prohibited,  but  not  otherwise."  In  Hookham  v.  Pottage,  L. 
R.    8   Ch.   App.    91,    plaintiff  and    defendant    had    been    co-part  tiers    as 

Hookham  &  Pottage.  Plaintiff  succeeded  to  the  business,  and  defend- 
ant afterward  set  up  a  shop  only  a  few  doors  away,  and  printed  Over 
the  door  the  words,  "  Pottage,  from  Hookham  &  Pottage."     The  court 


598  ACCOUNTING   AND    DISTRIBUTION.  [CHAP.  VIIL 

held  that  "  Defendant  had  a  right  to  state  that  he  was  formerly  man- 
ager, and  afterward  a  partner,  in  the  firm  of  Hookham  &  Pottage,  and 
that  he  had  a  right  to  avail  himself  by  the  statement  of  that  fact  of  the 
reputation  which  he  had  so  acquired,  but  that  he  had  no  right  to  make 
that  statement,  or  to  avail  himself  of  that  reputation,  in  such  a  way  as 
was  calculated  to  represent  to  the  world  that  the  business  which  he  was 
carrying  on  was  the  business  of  Hookham  &  Pottage,  or  that  Hookham 
had  any  interest  in  it."  In  Meneely  v.  Meneely,  62  N.  Y.  431,  the 
court  say:  "If  defendants  were  using  the  name  with  the  intention  of 
holding  themselves  out  as  the  successors  of  Andrew  Meneely,  and 
as  the  proprietors  of  the  old  established  foundry  which  was  being 
conducted  by  plaintiffs,  and  thus  enticing  awa}-  customers,  and  if  with 
that  intention  they  used  the  name  in  such  a  way  as  to  make  it  appear 
that  of  the  plaintiffs'  firm,  or  resorted  to  any  artifice  to  induce  the 
belief  that  defendants'  establishment  was  the  same  as  that  of  plaintiffs, 
and  perhaps  without  actual  fraudulent  intent,  they  had  done  acts  cal- 
culated to  mislead  the  public  as  to  the  identity  of  the  establishment, 
and  produce  injury  beyond  that  which  resulted  from  similarit}'  in  name, 
then  the  court  would  enjoin  them,  not  from  the  use  of  the  name,  but 
from  using  it  in  such  a  way  as  would  deceive  the  public.  .  .  .  Every 
man  has  the  absolute  right  to  his  own  name  in  his  own  business,  even 
though  he  may  thereby  interfere  with  or  injure  the  business  of  another, 
bearing  the  same  name,  provided  he  does  not  resort  to  any  artifice  or 
contrivance  for  the  purpose  of  producing  the  impression  that  the  estab- 
lishments are  identical,  or  do  anything  calculated  to  mislead."  In 
Fullwood  v.  Fullwood,  9  Ch.  Div.  176,  R.  J.  Fullwood  carried  on  busi- 
ness as  manufacturer  of  aunatto  at  24  Somerset  Place,  Hexton,  from 
1785  to  1832.  Plaintiff  and  three  brothers,  one  of  whom  was  the 
defendant,  succeeded  to  the  business,  but  ultimately  the  right  to  carry 
on  the  business  vested  in  the  plaintiff.  Defendant,  Mathew  Fullwood, 
and  another  brother  formed  a  co-partnership  in  the  name  of  E.  Full- 
wood  &  Co.,  and  issued  and  distributed  in  various  wa}-s  cards  contain- 
ing the  following:  "Established  over  85  years.  E.  Fullwood  &  Co. 
(late  of  Somerset  Place,  Hexton),  Original  Manufacturers  of  Liquid 
and  Cake  Annatto."  They  also  placed  around  the  bottles  containing 
the  annatto  a  wrapper  resembling  that  which  plaintiff  used.  The  court 
say :  "Defendants  are  entitled  to  carry  on  their  business  under  the 
firm  name  which  they  have  adopted,  if  the}-  are  so  minded,  provided 
they  do  not  represent  themselves  to  be  carrying  on  the  business  which 
has  descended  to  plaintiff."  In  Bininger  v.  Clark,  60  Barb.  113,  the 
defendant  wrongfully  advertised  himself  as  successor  to  the  old  firm, 
and  made  such  a  use  of  his  own  name  as  to  indicate  a  fraudulent 
intent.  Hegeman  v.  Hegeman,  8  Daly,  1  ;  Levy  v.  Walker,  10  Ch. 
Div.  436.  In  Churton  v.  Douglas,  Johns.  Eng.  Ch.  174  ;  5  Jur.  (n. 
s.)  887,  plaintiff  and  defendant  had  carried  on  the  business  as  stuff 
manufacturers  at  Bradford  in  a  building  owned  b}'  defendant,  and 
known  as  "  Hall  Ings,"  under  the  name  and  style  of  John  Douglas  & 


§  5.]  THE    GOOD-WILL   OF   THE    FIRM    BUSINESS. 

Co.  Defendant  sold  out  to  plaintiff  all  his  share,  right,  and  title  in  the 
business,  including  the  good-will,  and  executed  to  plaintiff  a  seven 
years'  lease  of  the  premises  occupied  by  the  firm.  Within  a  Bhort 
period  defendant  set  up  in  the  same  line  of  business,  next  door  to  plain- 
tiff, in  a  part  of  the  same  building,  known  a-  •■  Hall  fags,"  adopting 
the  old  firm  name  of  John  Douglas  &  Co.  The  court  held  that  defend- 
ant, by  the  use  of  the  old  linn  name,  and  the  surroundings,  would  be 
obtaining  the  custom  of  the  old  linn,  by  inducing  the  belief  that  his 
was  a  continuation  of  the  old  establishment  The  court  Bays  :  "  The 
authorities,  I  think,  are  conclusive  upon  this  point,  that  the  mere 
expression  of  parting  with  or  selling  the  good-will  docs  not  imply  a 
contract  on  the  part  of  the  person  parting  with  that  good-will  not  t> 
up  again  in  the  similar  business  ;  but  I  use  the  expression  «  similar  '  to 
avoid  including  the  case  of  the  vendor  seeking  to  carry  on  the  identical 
business.  He  does  not  contract  that  he  will  not  carry  on  an  exactly 
similar  business,  with  all  the  advantage  which  he  might  acquire  from 
his  industry  and  labor,  and  from  the  regard  people  may  have  of  him, 
and  that  in  a  place  next  door,  if  you  like,  to  the  very  place  where  the 
former  business  was  carried  on.  It  is  settled  that  it  is  the  fault  of 
those  who  wish  any  protection  against  such  a  class  that  they  do  not 
take  care  to  insert  the  provision  to  that  effect  in  the  deed." 

The  same  principle  obtains  with  reference  to  trade-marks.  One 
may  have  a  right  in  his  own  name  as  a  trade-mark,  but  he  cannot  have 
such  a  right  as  against  another  person  of  the  same  name,  unless  the 
defendant  use  a  form  of  stamp  or  label  so  like  that  used  by  the  plain- 
tiff as  to  represent  that  the  defendant's  goods  are  of  the  plaintiff's 
manufacture.  Sykes  v.  Sykes,  3  Barn.  &  ('.  ."ill  ;  Ilolloway  r.  Ilollo- 
way, 13  Beav.  209;  Rogers  V.  Taintor.  '.'T  .Mass.  291;  Oilman  <•. 
Hunnewell,  122  Id.  139  ;  Goodyear's  India  Rubber  Glove  Manuf.  Co. 
v.  Goodyear  Rubber  Co.,  128  U.  S.  598.  The  tests  applied  by  all  the 
authorities  in  this  class  of  cases  are:  Is  a  corporate  or  trade  or  ficti- 
tious name  simulated?  Is  the  name  assumed  or  adopted  false  in  fact? 
Is  it  used  in  connection  with  locality  or  other  representations,  so  as  to 
convey  the  impression  that  the  business  is  a  continuation  of  the  old 
business?  Defendants  are  not  responsible  for  the  blunders  made 
by  clerks,  postal  clerks,  mail  carriers,  telephone  employees,  or  news- 
paper reporters.  In  Meneely  v.  Meneely,  the  court  say  :  "  When  the 
only  confusion  created  is  that  which  results  from  the  similarity  of 
names,  the  court  will  not  interfere."  In  Turton  v.  Turton,  it  is  said 
that  "defendants  are  not  responsible  for  the  blunders  made  by  the 
business  community  in  not  distinguishing  between  John  Turton  &  Sous 
and  Thomas  Turton  and  Sons."  See  also  Richardson  &  Boynton  Co. 
v.  Richardson  &  Morgan  Co.  (Sup.),  8  N.  Y.  Supp.  52;  Goodyear's 
India  Rub.  Gl.  Manuf.  Co.  v.  Goodyear  Bub.  Co.,  128  U.  S.  .r.'.^. 

Any  collocation  of  the  names  of  Farrand  and  Williams  would  create 
some  confusion.  Defendant  Clark  had  been  connected  with  the  old 
business  for  thirty  years,  and  Williams,  the  son-in-law  of  Mr.  Fan  and. 


600  ACCOUNTING   AND    DISTRIBUTION.  [CHAP.  VIIL 

for  twenty-one  years.  Defendants  are  using  their  own  names  only. 
They  went  into  business  on  Woodward  Avenue,  several  blocks  from 
the  old  stand.  In  every  letter-head,  bill-head,  card,  or  advertisement 
in  which  their  firm  name  appears  they  give  the  individual  names  of  the 
members  of  the  firm,  the  new  place  of  business,  and  in  no  case  have 
they  represented  that  thej7  are  successors  to  the  old  firm.  The  bill- 
heads used  by  the  old  firm  had  a  cut  of  the  old  stand  on  the  left-hand 
upper  corner,  about  three  inches  square.  Those  of  the  new  firm  con- 
tain no  cut,  and  less  than  half  of  the  amount  of  matter.  It  would  be 
exceedingly  difficult  to  prepare  two  bill-heads  more  unlike.  Tha 
letter-heads  of  the  old  firm  contained  two  cuts  —  one  of  the  old  stand, 
at  the  left  hand,  and  one  of  the  Peninsular  White  Lead  and  Coloi 
Works,  on  the  right.  The  dissimilarity  is  marked.  The  envelopes 
used  by  the  old  firm  contain  eight  printed  lines  on  the  upper  left- 
hand  corner,  occupying  an  in';h  and  three-quarters  of  space.  Those 
used  b}r  the  new  firm  contain  five  lines,  occupying  about  three-quarters 
of  an  inch  in  space.  There  has  been  no  attempt  at  imitation  in  words 
or  type.  On  March  15,  they  announced,  through  circulars  distributed 
generally,  that  they  had  engaged  in  business  at  32  and  34  Woodward 
Avenue  ;  that  thev  expected  to  have  their  new  store  ready  for  occu- 
pancy in  a  few  days ;  and  that  the  work  of  getting  a  new  stock  of 
goods  would  be  pushed  as  fast  as  possible.  On  April  7,  they  issued 
another  circular,  announcing  that  they  were  now  prepared  to  fill  orders, 
and  hoping  that  the  friendly  acquaintance  of  many  years  would  be 
continued.  An  advertisement  is  produced,  wherein  defendants  sa}' : 
"Though  it  may  seem  paradoxical,  it  is  nevertheless  true,  that  the 
wholesale  drug  house  of  Farrand,  Williams,  &  Clark  is  both  the  oldest 
and  the  newest  representative  of  this  important  commercial  industry  in 
Detroit."  But  in  the  same  advertisement  the}*  announce  the  dissolu- 
tion of  the  old  firm,  their  retirement  from  said  firm,  and  the  formation 
and  business  location  of  the  new  firm.  It  is  difficult  to  imagine  how 
such  an  advertisement  would  mislead  the  public.  It  contains  no  false 
colors.  Both  parties  advertised  extensively  in  the  cit}'  and  State 
papers  and  in  the  trade  journals,  complainants  giving  the  names  of 
their  individual  members,  and  their  new  firm  name,  and  advertising 
themselves  as  the  successors  to  Farrand,  Williams,  &  Co.  ;  and  de- 
fendants giving  the  names  of  their  individual  members,  and  the  name 
and  business  location  of  the  new  firm.  Complainants  sent  out  circu- 
lars to  the  trade  general!)*,  informing  it  of  the  dissolution  of  the  old 
firm,  the  fact  that  they  were  the  successors,  and  giving  their  firm 
name ;  and  defendants  sent  out  circulars  announcing  their  withdrawal 
and  the  formation  of  a  new  firm.  There  is  no  doubt  but  that  the  dis- 
solution of  this  firm,  the  fact  that  complainants  had  bought  out  the 
interests  of  defendants,  the  name  adopted  by  complainants,  the  for- 
mation of  the  new  firm,  the  names  of  its  members,  and  the  defendants' 
firm  name,  have  been  most  extensively  advertised  by  both  parties,  not 
only  in  the  city,  but  through  the  State  and  Union.     Nearly  fifty  letters 


§  5.]  THE   GOOD-WILL    01    THE    FIRM    BUSINESS.  601 

have  been  received  by  the  old  firm,  since  the  dissolution,  addressed  to 
Farrand  &  Williams;  Farrand  «.v  William-  Paint  Co.;  Farrand  & 
Williams  Drug  Co.  ;  Farrand.  Shelej',  &  Brooks;  Farrand,  William.-. 
&  Sheley ;  Farrand,  Williams,  Sheley,  &  Co.;  Farrand,  Williams,  vv 

Brooks;  Farrand  &  Co.  :   William-.  Farrand,  &  Co.  ;  Farrand,  Sheley, 
&  Brooks;  Williams  &  Farrand;   Williams,   Farrand,  vv  Co.,  and  Wil- 
liams &  Co.     It  cannot  be  said  that  any  act  of  defendants  is  responsi- 
ble for  these  blunders.     Confusion  is  inseparable  from  the  dissolution 
of  an  old  firm  and  the  composition  of  two  linns  from  it-  membership, 
especially  when  the  name  of  but  one  of  these  who  remain  has  appeared 
in  the  firm  name,  and  the  new  firm  is  composed  of  one  whose  name  for 
nearly  half  a  century  has  stood  at   the  head  of  the  firm  name,  and  the 
surname  of  another  retiring  member  is   the  same  as  the  only  other 
name  used  in  the  old  firm  name.     It  appears  that  at  the  outset  defend- 
ant Clark  by  mistake  opened  two  or  three  letters  addressed  •■  Farrand, 
Williams,  &  Co.,"  but  in  every  other  instance  defendants  refused  to  re- 
ceive  mail  directed  to   Farrand,   Williams,   &  Co.,  unless  directed  to 
defendants' street  and  number;  that  in  a  single  instance  (lark  inad- 
vertently signed  a  letter  "  Farrand,  Williams,  o^  Co.  :"  that  two  checks 
were    sent    to   defendants   in   payment    for  goods  bought    from   them, 
which  were  payable  to  the  order  of  farrand,  Williams,  iV  Co.,  and  Mr. 
Farrand  indorsed  them  Farrand,  Williams,  &  Co.,  and  guaranteed  the 
indorsements;    that   in    four    instances    merchandise   or   articles    uot 
marked,  but  intended  for  defendants,  were  delivered  to  complainants, 
and  afterward  taken  away  ;  that  in  two  instances  complainants   wire 
notified  by  freight  agents  that  freight  awaited  delivery  ;  that  in  both 
the  goods  were  manifested  to  Farrand,  Williams,  &  Co.,  but  marked, 
and    were  afterward  delivered,    to    Farrand,    Williams.    &    Clark,    for 
whom    they  were  intended;    that  complainants  were   notified    that    a 
sample  box  of  glassware  had  been  shipped  to  them,  but  they  had  not 
received  it;  that  defendants  received  a  sample  box  of  glassware  from 
the  same  house,  which  was  billed  to  Farrand,  Williams.  &  (lark,  and 
the  latter  were  notified  of  the  shipment  by  the  assignors;   that   similar 
boxes  of  samples  had  been  sent  to  other  drug  houses  at  Detroit;  that 
in  one  or  two  instances  merchandise  had  been  delivered  to  defendants 
which  was  intended  for  complainants  ;  that  in  a  single  instance  a  cus- 
tomer at  Port  Huron,  who  knew  of  the  dissolution,  intending  to  call 
up  the  old  house  by  telephone,   asked  for   Farrand   &   Williams,    was 
given    Farrand,   Williams,    &   Clark,   and   told   that  it   was    Farrand, 
Williams,  &  Clark,  asked  the  price  of  oil,  and  ordered  one  barrel  ;   that 
one  hundred  and  twelve  letter-,  telegrams,  receipts,  or  hills  were  re- 
ceived by  complainants  directed  to   Farrand,  Williams,    &    Co..  which 
were  intended  for  defendants;   that  of  these   thirty-live  were  directed 
on  the  inside  to  Farrand.  Williams.  &  (lark  ;   that  all  of  the  letters  so 
received  were  from  business  bouses  from  which  defendants  were  buy- 
ing goods,    and  none   were   from  customers    of  either   house.      These 
proofs  do  not  tend  to  show  any  appropriation  by  defendants  of  th< 


602  ACCOUNTING   AND   DISTRIBUTION.  [CHAP.  VIIL 

firm  name,  or  any  attempt  to  secure  the  correspondence  addressed  to 
the  old  firm,  or  that  the  customers  have  been  deceived  or  misled,  or 
that  defendants  have  practised  an}-  fraud,  concealment,  or  deception. 

Complaint  is  made  in  the  bill  that  defendants  have  enticed  away 
certain  of  complainants'  salesmen,  but  this  charge  is  not  made  out  by 
the  proofs.  It  is  also  charged  that  defendants  have  simulated  certain 
trade-marks  and  labels  used  by  the  old  firm,  but  no  instance  of  piracy 
has  been  established.  Complainants  have,  under  the  authorities  cited, 
an  undoubted  right  to  protection  in  the  proprietary  rights  acquired  by 
the  old  firm,  and  in  the  use  of  such  trade-marks  as  were  in  use  b}*  the 
old  firm,  and  defendants  have  no  right  to  so  imitate  the  labels  in  use 
by  the  old  firm  as  to  convey  the  belief  that  the  goods  labelled  are  from 
the  old  house.  The  use  however  of  the  words,  "Sold  by  Farrand, 
"Williams,  &  Co.,"  or  "Prepared  b}r  Farrand,  Williams,  &  Co.,"  upon  a 
label,  will  not  be  protected  as  a  trade-mark  or  trade  name,  and  the  right 
to  use  that  name  in  that  connection  did  not  pass  under  the  bill  of  sale. 

The  decree  of  the  court  below  must  be  affirmed  as  of  February  27, 
1891,  and  the  bill  dismissed,  with  costs  to  defendants. 

Morse  and  Grant,  JJ.,  concurred  with  McGrath,  J.  Long,  J., 
did  not  sit.     Champlin,  C.  J.,  dissented. 


TREGO  et  al.  v.  HUNT. 

[1896]  Appeal  Cases  7. 

Lord  Macnaghton.  Aly  Lords,  the  question  for  the  House  to 
determine  is  this  :  Is  a  person  who  has  sold  the  good-will  of  his  busi- 
ness, or  one  in  the  position  of  the  respondent,  who  has  been  taken  into 
partnership  upon  the  terms  that  the  good-will  shall  belong  solely  to  his 
partner,  at  liberty  after  the  sale  or  the  expiration  of  the  partnership  (as 
the  case  may  be)  to  solicit  the  old  customers  of  the  business  ?  There 
can  be  no  difference  in  principle  between  the  two  cases.  In  1872  Lord 
Romilly,  M.  R.,  decided  the  question  in  the  negative  in  Labouchere  v. 
Dawson,  L.  R.  13  Eq.  322.  In  1884  the  question  was  determined  the 
other  way  by  the  Court  of  Appeal  in  Pearson  v.  Pearson,  27  Ch.  D. 
145,  and  Labouchere  v.  Dawson  was  overruled  by  Baggallay  and  Cotton, 
L.  JJ.,  differing  from  Lindley,  L.  J.,  who  thought  Lord  Romilly's  deci- 
sion right.  In  Labouchere  v.  Dawson  the  question  arose  out  of  a  sale  of 
good-will.  In  the  present  case  there  is  a  subsisting  partnership  between 
the  appellants  and  the  respondent  in  the  business  of  varnish  manufac- 
turers. One  of  the  terms  of  the  partnership  is  that  the  good-will  "shall 
be  and  remain  the  sole  property  "  of  the  appellant,  Anna  Trego.  The 
partnership  will  expire  on  January  1,  1896.  The  business  is  extremely 
lucrative,  the  connection  very  large.  The  respondent  is,  or  was  when 
this  action  was  commenced,  employing  one  of  the  clerks  in  copying 


§  5.]  THE    GOOD-WILL   OF   THE    FILM    BUSINESS.  603 

out  the  names  and  addresses  of  the  customers  with  the  avowed  inten- 
tion of  soliciting  their  custom  as  soon  as  the  partnership  expires. 

The  object  of  the  action  was  to  obtain  an  injunction  to  restrain  this 
proceeding  on  the  part  of  the  respondent.  It  is  nut  necessary  to  con- 
sider whether  the  action  at  the  outset  was  or  was  not  open  to  objection 
on  technical  or  other  grounds,  for  this  much,  at  least,  is  t<>  be  said  in 
favor  of  the  respondent,  that  he  met  the  case  fairly  ami  frankly  from 
the  very  lirst,  without  any  attempt  to  embarrass  the  plaintiff  or  to  con- 
ceal his  own  object.     His  defence  was —  "The  law  allows  it." 

After  the  observations  of  my  noble  and  learned  friend  on  the  wool- 
sack (Lord  Herschell),  I  do  not  think  it  necessary  to  deal  with  the 
question  at  any  length.  The  arguments  on  the  one  Bide  and  on  the 
other  are  summed  up  in  Labouchere  v.  Dawson  and  Pearson  o.  Pearson, 
and  little  remains  but  to  choose  between  the  conflicting  views  of  very 
eminent  lawyers.  Nor  do  I  think  it  necessary  to  do  more  than  allude 
to  the  case  in  which  Sir  George  Jessel,  M.  R.,  held  that  a  person  who 
had  sold  the  good-will  of  his  business  could  not  even  deal  with  his 
former  customers.  There,  I  think,  the  Master  of  the  Rolls  went  too  far. 
The  decision  trenched  on  the  rights  of  the  public.  On  the  other  hand, 
the  Master  of  the  Rolls  was  clearly  right  in  refusing  to  extend  the  prin- 
ciple of  Labouchere  v.  Dawson  to  a  sale  in  bankruptcy.  There  is  all  the 
difference  in  the  world  between  the  case  of  a  man  who  sells  what  belongs 
to  himself,  and  receives  the  consideration,  and  a  man  whose  property 
is  sold  without  his  consent  by  his  trustee  in  bankruptcy,  and  who  comes 
under  no  obligation,  express  or  implied,  to  the  purchaser  from  the 
trustee. 

"A  person  not  a  lawyer, "said  Plumer,  V.  C,  in  Harrison  v.  Gard- 
ner. 2  Madd.  at  p.  219  in  1817,  "  would  not  imagine  that  when  the  good- 
will and  trade  of  a  retail  shop  were  sold  the  vendor  might  the  next 
day  set  up  a  shop  within  a  few  doors  and  draw  off  all  the  customers. 
The  good-will  of  such  a  shop  in  good  faith  and  honest  understanding 
must  mean  all  the  benefit  of  the  trade,  and  not  merely  a  benefit  of 
which  the  vendor  might  the  next  day  deprive  the  vendee.  The  author- 
ities, however,  are  strong  to  show  that  the  sale  of  a  good-will  does  not 
import  restraint,  and  that  a  person  selling  the  good-will  of  a  business 
for  however  large  a  consideration  is  not  prevented  setting  up  tin-  trade." 
In  that  case,  as  it  happened,  there  were  other  circumstances  indicating 
bad  faith,  and  on  that  special  ground  the  Vice  Chancellor  granted  an 
injunction. 

I  agree,  in  substance,  with  the  observations  which  I  have  quoted  from 
the  judgment  in  Harrison  v.  Gardner.  What  'k  good-will  "  means  must 
depend  on  the  character  and  nature  of  the  business  to  which  it  is  at- 
tached. Generally  speaking,  it  means  much  more  than  what  Lord 
Eldon  took  it  to  mean  in  the  particular  case  actually  before  him,  in 
Cruttwell  v.  Lye,  17  Ves.  335,  -'Hi;,  where  he  says  :  "  The  good-will  which 
has  been  the  subject  of  sale  is  nothing  more  than  the  probability  thai  the 
old  customers  will  resort  to  the  old  place."    Often  it  happens  that  the 


604  ACCOUNTING   AND    DISTRIBUTION.  [CHAP.  VIII. 

good- will  is  the  very  sap  and  life  of  the  business,  without  which  the 
business  would  yield    little  or  no  fruit.     It    is    the  whole  advantage, 
whatever    it   may  be,  of  the  reputation  and  connection  of  the  firm, 
which  may  have   been   built  up  by  years  of  honest  work,  or  gained  by 
lavish  expenditure  of  money.     I  do  not  think  that  'k  a  person  not  a 
lawyer,"  to  use    the  Vice  Chancellor's    phrase,  would    suppose  that  a 
man  might  sell  the  good-will  of  his  business  and  then  set  to  work  to 
withdraw  from  the  purchaser  the   benefit  of  his  purchase.     However, 
authorities,  which  it  is  now  too  late  to  question,  undoubtedly  show  that 
a  man  who  has  sold  the  good-will  of  his  business  may  do  much  to  regain 
his  former  position,  and  yet  keep  on  the  windy  side  of  the  law.     The 
common  law  has  always  been  jealous  of  any  interference  with  trade. 
It  was  a  lighter  matter  to  interfere  with  freedom  of  contract  and  avoid 
covenants  under  seal.     Courts  of  equity  could  not  of  course  enforce, 
even  in  a  modified  form  and  within  reasonable  limits,  an  agreement  ex- 
press or  implied,  which  the  law  would  have  held  void  on  the  ground  of 
public  policy  ;  nor  could  they  treat  the  mere  non-observance  of  such  an 
agreement  as  fraudulent  or  inequitable.     And  so  it  has  resulted  that 
a  person  who  sells  the  good-will  of  his  business  is  under  no  obligation 
to  retire  from  the  field.     Trade  he  undoubtedly  may,  and  in   the  very 
same  line  of  business.     If  he  has  not  bound  himself  by  special  stipu- 
lation, and  if  there  is  no  evidence  of  the  understanding  of  the  parties 
bevond  that  which  is  to  be  found  in  all  cases,  he  is  free  to  carry  on 
business  wherever  he  chooses.     But,  then,  how  far  may  he  go?     He 
may  do  everything  that  a  stranger  to  the  business,  in  ordinary  course, 
would  be  in  a  position  to  do.      He  may  thus  interfere  with  the  custom 
of  his  neighbor,  as  a  stranger  and  an  outsider  might  do  ;  but  he  must 
not,  I  think,  avail  himself  of  his  special  knowledge  of  the  customers 
to  regain,  without  consideration,   that  which    he  has  parted  with  for 
value.     He  must  not  make  his  approaches  from  the  vantage  ground  of 
his  former  position,  moving  under  cover  of  a  connection  which  is  no 
longer  his.     He  may  not  sell  the  custom  and  steal  away  the  customers 
in  that  fashion.     That,  at  all  events,  is  opposed  to  the  common  under- 
standing of  mankind  and  the  rudiments  of  commercial  moralitv,  and 
is  not,  I   think,  to  be  excused  by  any  maxim  of  public  policy.     Is  it 
conceivable  that  the  respondent  would  ever  have  been  taken  into  part- 
nership if  he  had  hinted  at  such  a  manoeuvre  while  negotiations  for  a 
partnership  were  pending?     It  was  said  that  you  cannot  draw  the  line  ; 
but  I  think  that  the   line  may  be  drawn  at  this  point.     It  is  quite  true 
that  you  cannot  protect  the  purchaser  completely.    With  Lindley,  L.  J., 
I  am  disposed  to  regret  it.     It  is  quite  true  that  it  would  be  better  that 
the  purchaser  should  protect  himself  by  taking  apt  covenants  from  the 
person  with  whom  he  is  dealing.     But  this,  I  think,  is  rather  a  counsel 
of  perfection,  than  a  reason  for  leaving  the  purchaser  entirely  at  the 
mercy  of  the  vendor. 

The  principle  on  which  Labouchere  v.  Dawson  rests  has  been  pre- 
sented in  various  ways.     A  man  may  not  derogate  from  his  own  grant ; 


§  5.]  THE    GOOD-WILL   OF   THE    FIRM    BUSINESS.  605 

the  vendor  is  not  at  liberty  to  destroy  or  depreciate  the  thing  which  he 
has  sold;  there  is  an  implied  covenant,  on  the  sale  of  good-will,  that 
the  vendor  does  not  solicit  the  custom  which  he  has  parted  with  ;  it 
would  he  a  fraud  on  the  contract  to  do  so.  These,  as  it  seems  to  me, 
are  only  different  turns  and  glimpses  of  a  proposition  which  I  take  to 
be  elementary.  It  is  not  right  to  profess  and  to  purport  to  sell  that 
which  you  do  not  mean  the  purchaser  to  have  ;  it  is  Dot  an  honest  thing 
to  pocket  the  price  and  then  to  recapture  the  subject  of  sale,  to  decoy 
it  away  or  call  it  back  before  the  purchaser  has  had  time  to  attach  it  to 
himself  and  make  it  his  very  own. 

I  am  of  opinion  that  the  appellants  are  entitled  to  judgment.1 


DYER   v.    SHOVE   kt  al. 

3S  At.  (R.  I.)  498.     1S97. 

Per  Curiam.  The  testimony  shows  that,  upon  the  death  of  Addison 
H.  White,  the  surviving  partners  of  the  firm  of  A.  II.  White  &  Co. 
separated,  and  that  the  firm  had  a  large  list  of  customers  in  its  busi- 
ness of  insurance,  which  is  the  only  thing  of  value  alleged  to  have  been 
the  property  of  the  firm.  The  claim  here  made  is  that  Herbert  M. 
Shove  sold  the  good-will  of  the  business,  and  the  complainant,  as  sur- 
viving partner,  asks  an  account.  Upon  the  dissolution  of  the  firm, 
both  partners  had  the  right  to  access  to  the  books  and  to  the  list  of 
customers  of  the  old  firm.  Both  had  the  right  to  compete  for  the  con- 
tinuance of  their  business  with  the  old  customers.  The  respondent 
Sweet  knowing  that  Shove  had  this  connection  with  a  large  line  of 
customers,  paid  him  a  sum  of  money  to  be  admitted  into  partnership 
with  him.  It  does  not  appear  that  anything  more  than  this  was  done. 
No  exclusive  right  to  the  old  business  was  conveyed.  The  com- 
plainant could  have  made  a  similar  arrangement  without  infringing 
any  right  of  his  former  partner,  Shove.  One  partner  had  as  much 
right  to  use  the  name  of  the  old  firm  as  the  other.  There  was  there- 
fore no  sale  of  the  good-will  of  the  old  firm,  assuming  that  it  existed, 
and  hence  no  ground  for  the  bill  on  that  account.     Rice  v.  Angell,  78 

Tex.  355. 

T/u  biU  is  di8miss(  </. 

iLohdELukscheix  and  Lord  Davey  delivered  concurring  opinions.  "  Order  of  the 
Court  of  Appeal  reversed,  with  a  declaration  that  the  appellants  areentitled  to  an 
injunction  restraining  the  respondent,  his  partners,  servants,  oragents,  from  applying 
privately  by  letter,  personally,  or  hy  a  traveller,  to  any  person  who  was,  prior  to  the  dm- 
solution  of"  the  partnership,  a  customer  of  the  firm  of  Tabor,  Trego,«  Co.,  asking 
such  customer  to  continue  after  the  dissolution  to  deal  with  him,  the  respondent,  or 
not  to  deal  with  the  appellants." 


CHAPTEE   IX. 
limited  partnerships. 

§  1.     Their  Origen  and  Nature. 

AMES   v.   DOWNING. 

1  Brad.  (N.  Y.  Surrogates  Court)  321.     1850. 

Surrogate  Bradford.  .  .  .  The  testator  at  the  time  of  his  decease 
was  a  special  partner  of  Mr.  Hicks,  the  executor,  in  business  in  this 
city;  and  the  position  has  been  taken  by  the  counsel  for  the  execu- 
tor, that  the  firm  was  not  dissolved,  but,  notwithstanding  the  tes- 
tator's decease,  continued  until  the  expiration  of  the  term  limited  for 
its  duration.  The  idea  at  first  impression  is  apt  to  win  attention  if 
not  favor,  but  on  closer  scrutiny  cannot,  I  think,  be  upheld.  The 
legislation  which  brought  into  existence  among  us  this  form  of  part- 
nership, had  for  its  main  object  the  encouragement  of  commerce  by 
permitting  the  investment  of  capital  in  trade,  without  danger  to  the 
public,  or  risk  to  the  special  partner  beyond  the  extent  of  the  amount 
invested;  and  in  determining  the  legal  consequences  incidental  to  the 
introduction  of  such  an  institution,  there  seems  to  me  no  reason  for 
departing  from  the  rules  of  the  common  law,  any  further  than  is 
fairly  and  naturally  requisite  to  give  full  effect  to  the  intent  of  the 
statute  resting  upon  the  presumption  that  the  legislature  having 
expressed  the  points  in  which  the  common  law  was  intended  to  be 
abrogated,  that  line  should  not  by  judicial  construction  be  extended, 
except  by  way  of  reasonable  and  necessary  inference  to  effectuate  the 
general  objects  of  the  statute.  The  special  partnership  is  by  no 
means  a  complete  anomaly.  By  the  statute  it  is  termed  a  partner- 
ship, and  both  as  to  the  rights  of  the  parties  to  the  contract,  and  as 
to  the  world,  it  is  in  itself  a  proper  partnership,  except  as  it  limits 
the  liability  of  the  special  partner,  and  restricts  his  control  over  the 
business  of  the  firm.  The  members  are  partners,  and  by  slight  irreg- 
ularities may  easily  be  turned  into  general  partners.  The  statute 
terms  them  partners ;  except  for  the  statute  they  would  be  general 
partners,  and  from  participating  in  the  profits,  it  would  seem  to  be  a 
just  consequence  that  they  are  partners  in  every  sense,  subject  to  lia- 
bilities and  enjoying  privileges  as  partners  in  every  particular,  except 
as  otherwise  specially  provided,  The  common  law  regulates  the 
mutual  rights,  and  duties,  and  liabilities  of  partners,  and  governs 
these  limited  partnerships,  in  every  respect  not  excepted  out  of  the 
general  rule  by  this  statute.     The  12th  Section  provides  that  every 


§  1-J  THEIR   ORIGIN   AND   NATURE.  607 

alteration  which  shall  be  made  in  the  names  of  the  partners  shall  bo 
deemed  a  dissolution  of  the  partnership,  and  the  necessary  effecl  of 
an  assignment  by  a  special  partner,  of  his  interest  in  the  thin,  would 
be  to  alter  the  name  of  the  special  partner,  and  thus  to  work  dissolu- 
tion. Such  would  likewise  seem  to  be  the  consequence  of  the  death 
of  the  special  partner,  which  effects  an  alteration  in  the  Dame,  by 
operation  of  law,  through  the  medium  of  an  administrator.  The  18th 
Section  declares  also,  that  the  general  partners  shall  ho  liable  to 
account  to  each  other  and  to  the  special  partners  in  law  and  equity  as 
other  partners  now  are  bylaw;  and  the  24th  Section  provides,  that 
no  dissolution  by  the  acts  of  the  parties  shall  take  place  previous  to 
the  time  specified  for  the  duration  of  the  partnership,  without  public 
notice.  There  appears  to  be  nothing  in  the  act  incongruous  with  the 
idea,  that  the  partnership  is  governed  by  the  rules  applicable  to  gen- 
eral partnership,  except  in  the  particular  cases  enumerated.  There 
is  nothing  irreconcilable  with  the  dissolution  of  the  partnership  by 
operation  of  law  in  the  usual  cases.  I  have  Looked  into  the  statutes 
of  several  of  the  States,  where  similar  laws  have  been  enacted,  and 
while  they  all  imply  that  a  dissolution  may  occur  by  operation  of 
law,  those  of  Massachusetts,  Michigan,  Rhode  Island,  and  Virginia 
expressly  admit  of  that  mode  of  dissolution.  The  Code  of  Louisiana 
declares,  that  all  partnerships  shall  terminate  with  the  death  of  one 
of  the  partners,  and  quite  a  number  of  these  acts  prescribe  that  in 
cases  not  provided  for  the  law  relating  to  general  partnerships  Bhall 
govern.  Eev.  Stat.  Mass.  306;  La.  Code,  2799,  2810,  2851;  Rev. 
St.  Me.  264;  Laws  Miss.  839;  Rev.  St.  Mich.  156;  R.  S.  N.  J.  872; 
Laws  Pa.  620;  Laws  R.  I.  280;  Va.  Code,  583;  Laws  Conn.  528; 
Laws  Ind.  429 ;  Code  of  Ga.  373. 

Now  if  any  other  principle  is  admitted,  what  is  the  result?  If  the 
death  of  the  special  partner  does  not  cause  a  dissolution,  shall  that 
of  the  general  partner  have  that  effect?  If  the  death  of  the  special 
partner  does  not  dissolve  the  firm,  shall  his  executor  or  administrator 
be  the  partner?  If  so,  does  not  that  introduce  a  new  name  into  the 
firm?  And  if  it  does,  then  the  executor  or  administrator  becomes  a 
general  partner,  and  if  a  general  partner,  then  he  can  dissolve  the 
firm  (R.  S.  3d  ed.  §  12,  p.  50),  or  on  the  other  hand,  the  estate  he 
represents  may  be  thrown  into  the  hazards  of  a  general  partnership, 
and  the  executor  or  administrator  have  to  attend  personally  to  the 
transaction  of  a  regular  partnership  business.  The  above  statement 
of  some  of  the  embarrassing  results  which  would  How  from  this  novel 
proposition,  should  induce  hesitation  and  caution  in  admitting  it. 

No  doctrine  is  more  universally  established,  than  that  by  the  death 
of  any  one  of  the  partners  the  partnership  is  ipso  facto  dissolved;  and 
this  not  only  as  to  the  deceased  partner,  but  also  as  between  all  the  sur- 
vivors, and  however  numerous  the  association  may  be.  The  reasoning 
upon  which  this  result  is  attained,  as  well  as  the  rule  itself,  is  amply 
illustrated  by  the  civilians,  the  doctrine  having  its  foundation  in  the 


608  LIMITED    PARTNERSHIPS.  [CHAP.  fX, 

civil  law,  though  it  has  been  recognized  and  adopted,  to  its  fullest  ex- 
tent, by  the  common  law.     The  personal  qualities,  skill,  character,  and 
credit  of  each  partner  enter  so  thoroughly  into  every  contract  of  this 
kind,  that  the  law  very  wisely  considers  it  a  personal  contract,  expir- 
ing with  death.     Though   these  reasons    are  not   so   apposite  to  a 
special  as  to  a  general  co-partnership,  yet  they  are  measurably  appli- 
cable.    It  is  true  that  a  special  partner  has  no  control  over  the  busi- 
ness of  a  firm,  and  contributes,  as  a  matter  of  duty,  no  portion  of  his 
time,  labor,  or  abilities  towards  the  management  of  its  affairs,  but  he 
may  from  time  to  time  examine  into  the  state  and  progress  of  the 
partnership  concerns,    and   advise    as    to  their   management.     This 
brings  him  into  the  most  intimate  relations  with  the  general  partner; 
and,  in  view  of  his  right  to  give  advice,  it  is  evident  the  general 
partner  may  perhaps  have  built  up  well-founded  hopes  of  a  success- 
ful and  thriving  trade,  upon  the  experience,  wisdom,  and  abilities  of 
his  associate,  expectations  sure  to  be  destroyed  by  death.     How  often 
is  it  the  case  that  a  successful  merchant,  retiring  from  the  cares  of 
active  business,  enters  into  a  partnership  of  this  kind,  where  his 
knowledke  and  sagacity,  and  his  influence,  are  important  inducements 
with  the  general  partner  to  enter  into  the  contract.      Does  a  limited 
partnership   survive  the  death  of  the   special   partner?     Then  it  is 
compulsory  on  the  survivor  to  receive  into  the  partnership,    at  all 
hazards,  the  executor  or  administrator  of  the  deceased,  his  next  of 
kin,  a  creditor  or  stranger  taking  administratives;  and  whatever  may 
be  the  inconvenience  and  hardship  of  being  thus  thrown  against  his 
will,  into  connection  with  a  stranger,  or,  perchance,  with  some  one 
personally  disagreeable,  or  hostile,  the  general  partner  must  submit 
to  the  examination  of  the  books,  the  visits,  and  the  advice  of  the 
incomer.     Gow  on  Partn.  §3,   p.   220;  Collyer,    3d  Am.   ed.  p.   99. 
The  joint  stock  companies,  many  of  which  exist  in  England,  often 
comprise  a  large  number  of  persons,  and  though  generally  managed 
by  officers  chosen  at  elections  held  by  the  stockholders,  they  are  liable 
to  the  application  of  the  same  rules  of  law  in  regard  to  death  and 
dissolution,  as  general  partnerships,  unless  provision  be  made  to  meet 
the  case,  in  the  deed  of  settlement,  or  articles  of  agreement.     Collyer, 
§§  1112,  1113,  1115. 

The  system  of  limited  partnerships,  which  was  introduced  by 
statute  into  this  State,  and  subsequently  very  generally  adopted  in 
many  other  States  of  the  Union,  was  borrowed  from  the  French  Code. 
3  Kent,  36;  Code  ale  Commerce,  19,  23,  24.  Under  the  name  of  la 
Soclete  en  commandite,  it  has  existed  in  France  from  the  time  of  the 
middle  ages;  mention  being  made  of  it  in  the  most  authentic  com- 
mercial records,  and  in  the  early  mercantile  regulations  of  Marseilles 
and  Montpelier.  In  the  vulgar  latinity  of  the  middle  ages  it  was 
styled  commenda,  and  in  Italy  accommenda.  In  the  statutes  of  Pisa 
and  Florence,  it  is  recognized  so  far  back  as  the  year  11G6;  also  In 
the  ordinance  of  Louis-le-Hutin,  of  1315;  the  statutes  of  Marseilles, 


§  1.]  THEIR   ORIGIN    AND    NATURE.  609 

1253;  of  Geneva,  of  1588.  Iu  the  middle  ages  it  was  one  of  the  d 
frequent  combinations  of  trade,  and  was  the  basis  of  the  active  and 
widely  extended  commerce  of  the  opulent  maritime  cities  of  Italy. 
It  contributed  largely  to  the  support  of  the  great  and  prosperous  trade 
carried  on  along  the  shores  of  the  Mediterranean,  was  known  in 
Languedoc,  Provence,  and  Lombardy,  entered  into  most  of  the  indus- 
trial occupations  and  pursuits  of  the  age,  and  eveo  travelled  under 
the  protection  of  the  arms  of  the  Crusaders  to  the  city  of  Jerusalem. 
At  a  period  when  capital  was  in  the  hands  of  nobles  and  clergy,  who, 
from  pride  of  caste,  or  canonical  regulations,  could  not  ensraere 
directly  in  trade,  it  afforded  the  means  of  secretly  embarking  in  com- 
mercial enterprises,  and  reaped  the  profits  of  such  lucrative  pursuits, 
without  personal  risk;  and  thus  the  vast  wealth,  which  otherwise 
would  have  lain  dormant  in  the  coffers  of  the  rich,  became  the  foun- 
dation, by  means  of  this  ingenious  idea,  of  that  great  commerce 
which  made  princes  of  the  merchants,  elevated  the  trading  class,  and 
brought  the  Commons  into  position  as  an  influential  estate  in  the 
Commonwealth.  Independent  of  the  interest  naturally  attaching  to 
the  history  of  a  mercantile  contract,  of  such  ancient  origin,  but  so 
recently  introduced  where  the  general  partnership,  known  to  the  com- 
mon law,  has  hitherto  existed  alone,  I  have  been  led  to  refer  to  the 
facts  just  stated,  for  the  purpose  of  showing  that  the  special  partner- 
ship is,  in  fact,  no  novelty,  but  an  institution  of  considerable  antiq- 
uity, well  known,  understood,  and  regulated.  Ducauge  defines  it  to 
be:  " Societas  mercatorem  qua  uni  socioruvi  tola  negotiationis  cura 
commendatur  certis  condition ibus."  It  was  always  considered  a 
proper  partnership,  societas,  with  certain  reserves  and  restrictions; 
and  in  the  ordinance  of  Louis  XIV.,  of  1078,  it  is  ranked  as  a  regu- 
lar partnership.  In  the  Code  of  Commerce  it  is  classed  in  the  same 
manner.  I  may  add,  as  an  important  fact,  for  the  explanation  of  a 
distinction  to  which  I  shall  shortly  advert,  that  the  French  Code  per- 
mits a  special  partnership,  of  which  the  capital  may  he  divided  into 
shares,  or  stock,  transmissible  from  hand  to  hand.  In  such  a  case, 
the  death  of  the  special  partner  does  not  dissolve  the  linn,  the  crea- 
tion of  transmissible  shares  being  a  proof  that  the  association  is 
formed  respectu  negotii,  and  not  respectu  personaintm;  hut  even  in 
such  a  partnership  the  death  of  the  general  partner  effecis  a  dis- 
solution, unless  it  is  expressly  stipulated  otherwise.  But,  says  M. 
Troplong,  it  would  be  wrong  to  extend  the  rule  that  a  partnership,  of 
which  the  capital  is  divided  into  transmissible  shares,  is  not  dissolved 
by  the  death  of  a  shareholder,  to  a  special  partnership,  the  capital  of 
which  is  not  so  divided.  The  statute  of  New  York  recognizes  only 
the  latter  kind  of  partnership,  the  names  of  parties  being  required  t( 
be  registered,  and  any  change  in  the  name  working  a  dissolution, 
and  turning  the  firm  into  a  general  partnership.  Such  a  partnership 
has  always  been  held  to  be  dissolved  by  the  death  of  the  special  part- 
ner.    This  partnership  remains  under  the  dominion  of  the  common 

3'J 


610  LIMITED    PARTNERSHIPS.  [CHAT.  IX. 

law.  Tt  has  created  between  the  special  and  general  partner  a  tie, 
which  is  not  subjected  to  the  caprice  of  unforeseen  changes;  it  has 
produced  mutual  relations  of  confidence,  which  the  general  partner 
cannot  be  forced  to  extend  to  strangers.  M.  Troplong,  Com.  du  con- 
trat  de  Societe  civile,  &c,  T.  1,  Preface,  57,  §  377,  &c. ;  T.  2,  §  888, 
p.  368.  The  French  jurists  generally  take  the  same  position,  defin- 
ing the  special  partnership  as  a  proper  partnership,  and  applying  the 
law  of  dissolution  by  death  to  all.  Pothier,  Traite  du  contrat  de 
Societe,  ch.  2,  §  2 ;  eh.  8,  §  3 ;  Merlin,  Repertoire,  de  Jiwisjjrudence, 
Art.  Societe,  §  7;  Duranton,  Droit  Francais,  torn.  17,  1,  3,  Tit.  9, 
§  470.  Pardessus  discusses  the  question  somewhat  at  length.  Droit 
Commercial,  torn.  4,  Pt.  5,  Tit.  3,  ch.  1,  §  4.  It  might  be  thought, 
he  says,  with  some  appearance  of  plausibility,  that  the  rule  of  a  dis- 
solution by  death  should  be  limited  to  general  partnerships,  in  form- 
ing which  the  probity  and  intelligence  of  each  member  have  been 
reciprocally  taken  into  consideration.  Indeed,  the  special  partner- 
ship does  not  suppose,  on  the  part  of  the  general  partners  any  per- 
sonal confidence  in  the  special  partners;  and  as  the  interests  and  the 
rights  of  the  latter  are  exclusively  limited  to  their  shares,  it  would 
seem  they  were  not  modified  by  their  decease,  and  their  heirs,  called 
to  take  their  place,  could  have  no  right  to  insist  that  death  had  dis- 
solved the  firm,  nor  the  general  partners  insist  upon  that  result. 
These  reasons,  to  question  the  general  rule,  appear,  nevertheless,  to 
yield  to  others  more  decisive.  The  persons  and  character  of  the 
special  partners  have  been  regarded  by  the  general  partners  when 
they  formed  this  kind  of  association.  The  special  partners  are,  in 
effect,  to  a  greater  or  less  extent,  called  to  annual  accountings,  to 
meetings  for  the  settlement  of  the  profits  and  losses,  and  to  an  exam- 
ination of  the  state  of  affairs.  This  scrutiny,  and  a  right  to  insist 
upon  a  dissolution  in  consequence  of  a  breach  of  the  contract,  or  to 
urge  their  claims  when  the  affairs  are  liquidated,  are  more  or  less 
vigorously  exercised.  The  difficulty  of  acting  harmoniously  with 
different  persons,  substituted  in  the  place  of  those  with  whom  the 
original  contract  was  made,  the  distrust  of  heirs  who  have  not  the 
grounds  of  esteem  and  confidence  which  influenced  the  deceased,  and 
the  impossibility  of  treating  easily  with  minors,  are  some  of  the 
reasons  which  will  not  permit  special  partnerships  to  be  excepted 
from  the  general  rule.  It  may  be  objected  that  these  reasons  apply 
only  in  favor  of  the  general  partners,  and  that  it  is  for  them  to  judge 
as  to  the  continuation  of  business  with  the  heirs.  But  the  heirs  of 
the  deceased  ought  to  enjoy  the  same  privilege.  Reciprocal  right 
ought  to  result  from  a  mutual  agreement.  There  is  no  solid  reason 
why  the  special  partnership  should  not  be  dissolved  by  the  death  of 
one  of  the  partners,  except  when  the  capital  is  divided  into  transmis- 
sible shares,  iu  which  case  the  associates  having  consented  that  each 
may  substitute  another  in  his  place,  as  he  may  desire,  without  the 
authority  of  the  others,  it  is  natural  to  conclude  that  the  heirs  of  a 


§  1.]  THEIR    ORIGIN    AND    NATUBE.  611 

deceased    member    fill    his   place    in    the   same    manner  as   if  he  had 
assigned  his  share.     1  have  given  the  Bubstance  of  the  reasoninj 
Pardessus,  and  the  result  he  attains  has  not  only  the  authority  o\   M. 

Troploug  in  its  favor,  but  also  that  of  other  commentators M.  L. 

Malpeyre,  et  Jourdain,  No.  474;  M.  Persil,         .   p.   344 while  it 

does  not  appear  to  have  been  questioned  or  doubted. 

It  thus  appears,  that  iu  the  jurisprudence  of  that  nation  whei.ee 
the  peculiar  contract  of  special  partnership  has  been  adopted  by  us 
and  grafted  into  our  law,  —  where  the  system  has  long  existed,  is 
familiarly  known,  and  its  nature,  qualities,  and  practical  relations  to 
various  events  and  circumstances  have  been  well  considered  under  the 
light  of  no  brief  experience,  —the  effect  of  the  death  of  the  special 
partner  is  to  dissolve  the  firm.  This  agrees  with  the  conclusion  1 
had  attained  upon  independent  reasoning,  before  consulting  these 
authorities,  and  I  am  consequently  led  to  pronounce  the  firm  in  which 
the  testator  was  a  special  partner,  dissolved  at  his  death;  and  to  hold 
the  executor,  who  was  his  general  partner,  responsible  lor  the  testa- 
tor's interest  in  the  firm  at  that  time,  upon  a  liquidation  of  the  affairs 
as  if  made  then. 


CLAPP  v.    LACEY  et  al. 

35  Conn.  4G3.     1868. 

Plaintiff,  as  executrix  of  the  special  partner  in  Lacey,  Meecfcer, 
&  Co.,  claimed  payment  from  the  general  partners  of  $15,000,  loaned 
by  her  testator  to  the  firm.  The  defendants  refused  payment  on  the 
ground  that  the  other  debts  of  the  firm  are  by  law  entitled  to  priority 
of  payment,  and  that  they  are  not  by  law  liable  to  pay,  and  have  no 
legal  right  to  pay,  the  debt  of  the  plaintiff  until  the  other  debts  have 
been  paid  in  full.     The  case  wras  reserved  for  the  advice  of  this  court. 

Loom  is  and  Beardsley,  for  the  plaintiff. 

Treat  and  A.  P.   Whitehead,  for  the  defendants. 

Bctler,  J.  We  are  all  agreed  that  we  must  advise  the  Superior 
Court  to  determine  the  question  which  it  is  asked  to  decide  in  the 
negative.  The  case,  as  presented,  does  not  find  that  the  assets  of 
the  general  partners  are,  in  fact,  insufficient  to  pay  the  debts  of  the 
partnership  and  that  of  Mrs.  Clapp,  ami  in  the  absence  of  such  a 
finding  no  sufficient  reason  for  withholding  payment  from  Mrs.  Clapp 
appears. 

In  regard  to  the  construction  which  should  be  given  to  the  statute 
in  cases  where  insolvency,  in  fact,  exists,  we  are  not  all  agreed.  A 
majority  of  the  court  are  of  opinion  that  the  last  clause  of  the  8th 
section  of  the  statute  has  reference  to  the  capital  advanced  by  tlif 
special  partner,  and  not  to  a  loan  like  that  which  constitutes  the  debt 
in  question. 


612  LIMITED    PARTNERSHIPS.  [CHAP.  IX. 

Our  statute  in  relation  to  limited  partnerships,  and  that  of  New 
York,  were  both  passed  in  the  year  1822.  Both  were  taken  in  sub- 
stance from  the  law  of  France,  and  neither  is  a  copy  of  the  other;  they 
differ  in  their  arrangement  and  some  of  their  provisions.  The  law 
of  New  York  was  copied  in  New  Jersey  and  Pennsylvania,  and  per- 
haps some  other  States.  In  New  York,  New  Jersey,  and  Pennsyl- 
vania, the  provision  in  question  constitutes  a  separate  section,  and 
is  as  follows:  "  In  the  case  of  the  insolvency  or  bankruptcy  of  the 
partnership,  no  special  partner  shall,  under  any  circumstances,  be 
allowed  to  claim  as  a  creditor  until  the  claims  of  all  the  other 
creditors  of  the  partnership  shall  be  satisfied."  In  1837,  Chancellor 
Walworth,  in  the  case  of  Mills  v.  Argall,  6  Paige,  577,  held  that  sec- 
tion a  bar  to  any  claim  for  a  debt  by  a  special  partner,  until  the 
claims  of  other  creditors  of  the  partnership  were  satisfied,  and  held 
an  assignment  preferring  such  a  claim  for  that  reason  void.  His 
opinion  in  that  case  assumes  that  to  be  the  true  construction  of  the 
statute,  without  entering  into  any  examination  of  it,  or  assigning 
any  reason  for  it.  The  Superior  Court  of  New  York,  in  the  case  of 
Hayes  v.  Bement,  3  Sandf.  Sup.  Ct.  R.  394,  and  the  Supreme  Court 
in  the  case  of  Ward  v.  Newell,  42  Barb.  482,  and  the  Court  of  Appeals 
in  the  case  of  White  v.  Hackett,  20  New  York,  178,  followed  the 
decision  of  the  chancellor,  and  the  courts  of  Pennsylvania  and  Vir- 
ginia have  followed  those  of  New  York;  but  as  our  statute  differs 
from  the  statutes  of  these  States,  the  decisions  taken  together, 
although  entitled  to  respect,  and  perhaps  justified  by  their  statutes, 
are  not  satisfactory  as  authority  for  the  construction  of  our  own. 
Such  a  construction  of  the  statute,  moreover,  was,  and  is,  inconsis- 
tent with  the  interests  of  the  commercial  community,  and  the  legisla- 
ture of  New  York  in  1857  amended  their  statute  in  that  particular, 
and  enacted  that  a  special  partner  may  "  loan  money  to  and  advance 
and  pay  money  for  the  partnership,  and  may  take  and  hold  the  notes, 
drafts,  acceptances,  and  bonds  of,  or  belonging  to,  the  partnership  as 
security  for  the  repayment  of  such  moneys  and  interest,  and  may  use 
and  lend  his  name  and  credit  as  security  for  the  partnership  in  any 
business  thereof,  and  shall  have  the  same  rights  and  remedies  in  these 
respects  as  any  other  creditor  may  have;"  thus  preventing  the  evils 
which  were  found  to  follow  the  construction  given  to  the  statute  by 
their  courts.  The  legislature  of  Massachusetts  adopted  a  law  author- 
izing limited  partnerships  in  1835,  and,  in  view  of  the  interests  of  the 
commercial  community,  wisely  avoided  the  insertion  of  any  section 
or  clause  like  that  of  New  York,  simply  providing  that  in  case  of 
insolvency  the  special  partners  should  be  held  responsible  for  all  the 
sums  by  them  in  any  way  received,  withdrawn,  or  divided,  so  as  to 
reduce  the  capital.  And  it  seems  probable  that  if  we  should  follow 
the  decisions  which  are  urged  upon  our  consideration,  and  give  the 
same  construction  to  our  statute,  we  should  go  counter  to  the  prevail- 
ing understanding  of  the  profession  and  the  community,  and  render 


I  1.]  THEIR    ORIGIN    AND    NATURE.  613 

immediate  corrective  legislation  necessary.  Under  such  circumstances, 
we  feel  it  to  be  our  duty  to  give  the  statute  an  independent  and  care- 
ful examination  ami  construction. 

In  doing  this  we  must,  in  the  first  place,  dissent  from  the  rule  of 
construction  claimed  by  the  counsel  for  the  general  partners  to  be 
applicable  to  the  case.  The  statute,  in  our  judgment,  is  not  in  dero- 
gation of  the  common  law,  because  limited  partnerships  are  unknown 
to  that  law,  but  an  enabling,  enlarging,  and  regulating  statute,  reme- 
dial in  its  character,  and  not  therefore  to  be  construed  strictly  I 
claimed.  We  discover  nothing  in  its  character,  purpose,  or  pro- 
visions requiring  any  other  than  an  ordinary  and  reasonable  con- 
struction. 

Looking,  then,  to  the  statute  as  a  whole,  and  its  history,  in  con- 
nection with  the  then  condition  of  commercial   law,  we  find   a  clear, 
general  purpose  and  intent  of  the  legislature  to  encourage  trade  by 
authorizing  and  permitting  a  capitalist  to  put  his   money  into  part 
nership  with  general  partners  possessed  of  skill  and  business  charac- 
ter only,  without  becoming  a  general  partner,  or  hazarding  anything 
in  the  business  except  the  capital  originally  subscribed.     Such  being 
the  object  and  purpose  for  which  the  partnership  was  authorized,  and 
the  obvious  general  intent  of  the  legislature,  it  seems  to  us  to  be  in 
direct  antagonism  with  that  object  and  intent  to  make  that  capitalist 
a  general  partner  as  to  any  loans  or  advances  other  than  the  capital 
which  he  may  make  to  the  firm  to  assist  them   in  their  business,  or 
save  them  from  bankruptcy  during  a  period  of  stringency  or  panic, 
when  solvent  houses  are  prostrated  unless  aided  by  their  friends. 

Looking  again,  and  particularly  at  the  provisions  <>f  the  ad.  we 
find  the  same  general  intent  particularly  expressed  in  the  second 
section,  which  contemplates,  and  says,  that  "The  liability  of  the 
special  partner  shall  extend  no  further  than  the  funds  or  capital  which 
he  or  they  shall  have  furnished  to  the  capital  stock."  Bui  it  is  obvi- 
ous that  upon  the  construction  claimed,  the  liability  of  the  special 
partner  will  extend  to  and  embrace  all  loans,  advances,  and  other 
sums  for  which  the  partnership  may  in  good  faith,  and  for  their  best 
interests,  in  the  course  of  their  business,  and  independent  of  the  cap- 
ital stock,  become  indebted  to  him.  Under  that  construction,  he  can- 
not rent  a  building  to  them  in  which  to  do  their  business  without 
having  his  liability  as  general  partner  extend  to  the  rent. 

Such  being  the  general  intent  of  the  legislature  clearly  deducible 
from  the  history,  object,  and  purpose  of  the  law.  and  the  express 
language  of  the  second  section,  and  the  construction  claimed  being 
antagonistic  to  it,  we  think  it  char  that  it  should  not  be  adopted, 
unless  necessarily  ami  imperatively  demanded  by  the  language  of  the 
act;  and  we  do  not  think  such  a  construction  is  required.  <  >n  th« 
contrary,  we  think  a  different  one,  conforming  to  th.-  obvious  general 
intenl  of  the  law,  is  in  harmony  with  the  Language  of  the  section  in 
question. 


614  LIMITED    PARTNERSHIPS.  [CHAP.  IX. 

The  8th  section  is  as  follows:  "All  advancements  to  the  capital 
stock  by  the  special  partners  shall  be  made  in  cash  payments,  and 
no  part  of  the  capital  furnished  by  such  partners  shall  be  withdrawn, 
either  in .  the  shape  of  dividends,  profits,  or  otherwise,  at  any  time 
within  the  period  during  which  the  partnership  shall  be  continued; 
nor  shall  any  special  partner,  under  any  circumstances,  be  considered 
as  a  creditor  or  allowed  to  claim  as  a  creditor  in  case  of  the  insol- 
vency or  bankruptcy  of  the  partnership."  Now  it  is  to  be  observed 
that  the  particular  language  relied  on,  namely:  "  Nor  shall  any  special 
partner,  under  any  circumstances,  be  considered  a  creditor,  or  allowed 
to  claim  as  a  creditor  in  case  of  the  insolvency  or  bankruptcy  of  the 
partnership,"  is  part  of  a  section,  and  of  a  single  sentence  too, 
which  relates  expressly  to  the  capital  stock  of  the  special  partner, 
and  contemplates  three  things:  viz.,  1st,  that  the  capital  stock  shall 
be  furnished  by  the  special  partner  in  cash;  2d,  that  it  shall  not  be 
withdrawn  directly  or  indirectly  during  the  continuance  of  the  part- 
nership; and  3d,  that  as  to  that  capital  the  special  partner  shall 
never  be  considered  as  a  creditor,  or  allowed  to  claim  as  a  creditor. 
So  much  is  unquestionable.  The  language  does  apply  to  the  capi- 
tal stock  and  prohibit  the  special  partner  from  being  considered 
as  a  creditor  as  to  that  in  the  contingency  named.  Does  it  neces- 
sarily import  more?  That  is  the  point  of  the  inquiry,  and  we  think 
not.  Moreover,  those  words,  "  be  considered  as  a  creditor,"  are  not 
in  the  laws  of  any  of  the  States  whose  decisions  have  been  cited,  and 
preceding  the  words  "  allowed  to  claim  as  a  creditor,"  which  obvi- 
ously refers  to  the  subject  matter,  are  exceedingly  significant  of  the 
intention  of  the  legislature. 

They  are  apt  words  to  prohibit  the  consideration  under  any  cir- 
cumstances of  the  fund  as  a  debt  which  is  put  in  as  capital,  but  are 
not  apt  or  significant  words  except  as  they  relate  to  something  which 
is  not  a  debt  in  fact,  but  which  may  be  treated  as  such  by  the  part- 
ners among  themselves,  and  will  be  considered  such  on  the  winding 
up  of  the  partnership,  and  say  that  it  shall  not  be  so  considered 
under  any  circumstances  till  the  debts  are  paid.  A  debt  is  a  debt, 
and  cannot  be  considered  or  treated  as  anything  else;  the  special 
capital  could  be  treated  by  the  partners  as  a  debt,  if  not  prohibited; 
and  thus  read,  a  full  and  natural  meaning  is  given  the  words,  in  har- 
mony with  the  whole  language  of  the  section  and  sentence,  and  with 
the  purpose  and  intent  of  all  the  other  provisions  of  the  law,  and  not 
inconsistent  with  either.  It  is  not  enough  that  the  language  is  suffi- 
ciently comprehensive  to  reach  business  debts;  for  there  is  nothing 
else  to  show  such  an  intent;  and  they  do  refer  to  the  capital. 

And  why,  it  may  be  asked,  if  the  legislature  intended  what  is 
claimed,  did  they  not  by  some  one  of  fifty  conceivable  and  brief 
forms  say  so?  The  law  was  evidently  prepared  with  great  care.  It 
carries  on  its  face  a  general  intent,  and  if  the  legislature  intended  it 
should  contain  a  particular  inconsistent  intent,  is  it  nut  reasonable 


§  1.]  THEIR   ORIGIN    AND    NATURE.  615 

to  assume  that  they  would  have  expressed  that  particular  intent  in 
apt  and  unmistakable  words,  and  the  law  haw  contained  Bome  allu- 
sion to  it  as  part  of  the  intended  object  and  purpose?  And  if  that 
particular  intent  was  not  originally  and  sufficiently  expressed,  is  it 
reasonable  to  suppose  that  it  would  have  passed  through  two  or  three 
thorough  revisions  and  been  left  thus  ambiguous  and  inconsistent 
with  itself?     These  questions  carry  their  own  answer  with  them. 

Several  reasons  have  been  suggested  which  it  is  claimed  may  and 
should  have  influenced  the  Legislature  and  justify  the  construction 
claimed.  But  in  our  judgment  they  do  not  prove  the  particular  intent 
claimed.  And  there  is  nothing  whatever  which  will  justify  us  in 
holding  that  the  legislature  intended  to  legislate  in  respect  to  the 
business  contracts  of  the  special  partner  with  the  firm,  excepl  the  fact 
that  the  language  used  in  respect  to  the  special  capital,  if  wrested 
from  its  connections,  is  broad  enough  to  embrace  other  indebtedness. 
If  there  was  anything  else  to  show  that  the  words  were  intended  to  be 
used  in  their  broadest  sense,  and  nothing  to  show  the  contrary,  we 
might  feel  at  liberty  to  take  a  different  view  of  it. 

In  view  of  all  these  considerations,  we  think  it  is  our  duty  to  con- 
strue the  clause  in  question  as  relating  to  funds  furnished  by  the 
special  partner  as  capital  stock,  and  not  to  independent  debts  con- 
tracted with  him  as  an  individual  in  good  faith  and  in  the  course  of 
their  business;  and  so  we  advise  the  Superior  Court. 

In  this  opinion  Hinman,  C.  J.,  and  Carpenter,  J.,  concurred. 
Park,  J.,  dissented. 


EDWARDS   v.    WARREN,    &c.   WORKS,   LIMITED. 

168  Mass.  564 :  47  X.  E.  502.     1897. 

Lathrop,  J.  It  is  conceded  by  the  plaintiff  that  as  the  jurisdic- 
tion of  the  court  depends  upon  charging  the  Walworth  Manufacturing 
Company  as  trustee,  inasmuch  as  there  was  no  service  upon  the  prin- 
cipal defendant,  the  action  was  properly  dismissed  upon  discharging 
the  trustee.  The  question,  then,  is  whether  the  trustee  was  properly 
discharged,  and  this  depends  upon  whether  the  principal  defendant,  an 
association  formed  under  the  laws  of  the  State  of  Pennsylvania,  is  a 
partnership  or  a  corporation.  The  trustee's  answers  to  interrogatories 
refer  to  Brightly's  Purd.  Dig.  (12th  ed.)  108G-1088,  and  to  the  cases 
of  Eliot  r.  Himrod,  108  Pa.  St.  569,  and  Sheble  v.  Strong,  128  Pa.  St. 
315,  as  containing  the  law  relative  to  the  statement  in  the  answer  that 
the  principal  defendant  was  a  partnership,  and  not  a  corporation. 
From  the  Digest  it  appears  that  such  an  association  is  styled  a  "  part- 
nership association,"  and  not  a  corporation.  By  the  terms  of  the 
various  acts  which  have  been  passed  upon  the  Bubject,  such  an  associa- 
tion may  be  formed  by  three  or  more  persons.     The  capital  is  alone  to 


616  LIMITED   PARTNERSHIPS.  [CHAP.  IX. 

be  liable  for  the  debts.  There  is  no  personal  liability  of  the  members, 
except  to  the  extent  of  any  unpaid  subscription,  if  certain  provisions 
of  the  act  are  complied  with.  "  Interests  in  such  partnership  associa- 
tions "  are  declared  to  be  personal  estate,  and  are  transferable,  under 
such  rules  and  regulations  as  shall  from  time  to  time  be  prescribed  ; 
but,  if  there  are  no  such  rules  and  regulations,  the  transferee  of  any 
interest  in  any  such  association  is  not  entitled  to  any  participation  in 
the  subsequent  business  of  the  association,  unless  elected  to  member- 
ship therein,  by  a  vote  of  a  majority  of  the  members  in  number  and 
value  of  their  interests.  The  business  is  to  be  conducted  bjr  a  board 
of  managers.  The  duration  of  the  association  ma}^  be  fixed  b}'  the 
articles  of  association,  but  is  not  to  exceed  20  3'ears. 

Power  to  adopt  and  use  a  common  seal  is  given  in  case  the  associa- 
tion has  occasion  to  execute  a  deed  of  conveyance  or  bonds  and 
mortgages.  Land  sold  to  the  association,  or  by  it,  is  required  to  be 
conveyed  in  the  name  of  the  association.  It  is  further  provided : 
"Said  association  shall  sue  and  be  sued  in  their  association  name; 
and,  when  suit  is  brought  against  any  such  association,  service  thereof 
shall  be  made  upon  the  chairman,  secretary,  or  treasurer  thereof,  which 
service  shall  be  as  complete  and  effective  as  if  made  upon  each  and  every 
member  of  such  association."  In  Eliot  v.  Hirarod,  108  Pa.  St.  569, 
580,  it  is  said  by  Mr.  Justice  Trunkey,  in  delivering  the  opinion  of  the 
court:  " The  formation  of  a  limited  partnership  association  is  mate- 
rially different  from  the  creation  of  a  corporation.  Such  association  is 
treated  in  the  statute  as  a  partnership,  which,  upon  the  performance  of 
certain  acts,  shall  possess  specified  rights  and  immunities.  In  con- 
templation that  the  association  may  consist  of  many  members,  for 
convenience  it  is  clothed  with  many  of  the  features  and  powers  of  a 
corporation,  such  as  the  right  to  sue  and  be  sued,  grant  and  receive, 
in  the  association  name.  But  no  man  can  purchase  the  interest  of  a 
member,  and  participate  in  the  subsequent  business,  unless  by  a  vote 
of  a  majority  of  the  members  in  number  and  value  of  their  interests. 
No  charter  is  granted  to  the  persons  who  record  their  statement." 
Sheble  v.  Strong,   128  Pa.   St.  318,  is  to  the  same  effect. 

If  the  question  presented  were  an  open  one  in  this  commonwealth, 
it  might  well  be  held  that  such  an  association  could  be  considered  to 
have  so  many  of  the  characteristics  of  a  corporation  that  it  might  be 
treated  as  one.  At  common  law,  a  joint-stock  company  formed  for 
business  purposes  is  considered  in  this  commonwealth  merely  as  a 
partnership.  Tappan  v.  Bailey,  4  Mete.  (Mass.)  529  ;  Tyrrell  v. 
Washburn,  6  Allen,  466.  The  same  rule  has  been  applied  to  joint- 
stock  associations  formed  under  the  laws  of  the  State  of  New  York, 
which  do  not  differ,  in  any  essential  respect,  from  the  laws  of  Pennsyl- 
vania. Taft  v.  Ward,  106  Mass.  518;  111  Mass.  518;  Bodwelfr. 
Eastman,  106  Mass.  526;  Gott  v.  Dinsmore,  111  Mass.  45,  51  ;  Rail- 
road v.  Pearson,  128  Mass.  445.  See  also  Frost  v.  Walker,  60  Me 
468  ;  Dinsmore  v.  Railroad,  32  Leg.  Int.  38S  ;  11  Phila.  483.     In  Taft 


§  1.]  THEIR    ORIGIN    AND    NATURE.  617 

v.  "Ward,  106  Mass.  518,  524,  speaking  of  the  New  York  statutes,  it 
was  said  by   Chief  Justice   Chapman:      "These   statutes   provide,    in 
substance,  that  any    association   consisting  of  seven   or  more  share- 
holders or  associates  may  sue  and  he  sued  in  the  name  of  the  president 
or  treasurer  ;  that  in  such  suit  a  judgment  may  be  rendered  against  the 
company  ;  and  until  an  execution  is  issued  against  the  company  and 
returned  unsatisfied,  no  action  shall  be  maintained  against  individuals. 
These  statutes  seem  to  apply  to  all  co-partnerships  consisting  of  seven 
or  more  members.     The  members  of  such  companies  are  authorized  to 
hold  their  interests  in  shares,  which  are  assignable  like  Bhares  of  stuck 
in  a  corporation,  and  the  action  against  the  members  is  regarded  as 
supplementary    to   the    action    against   the   company.      Waterbury   v. 
Express  Co.,  50  Barb.  157;  Robbins  v.   Wells,  1   Rob.  (X.   r.)  666. 
So  far  as  these  statutes  relate  to  the  procedure  in  courts  for  the  re- 
cover}' of  debts,  the}'  are  limited  to  the  State  of  New  York  ;  for  each 
State  adopts  its  own  forms  of  remedy.     Story,  Confl.  Laws,  j  j  556  -558. 
The  plaintiff  could  not  in  this  commonwealth  bring  an  action  against 
the  president  or  secretary,  and  obtain  a  judgment  against  the  company 
by  its  name;  nor  could  he  bring  an  action  against  the  members,  or 
an}'  of  them,  as  a  supplement  to  such  an  action.      In  order  to  do  so, 
Ave  must  hold  that  the  statutes  of  New  York  prescribing  forms  of  action 
are  in  force  here.     In  this  commonwealth,  such  a  company  is  :i  mere 
co-partnership."     There  is   nothing   inconsistent  with  an  association 
being  a  partnership  that  it  has  shares,  or  that  the  shares  are  trans- 
ferable, or  that  the  death  of  a  member   shall  not  work  a  dissolution  of 
the  partnership.     Phillips    u.   Blatchford,  loT    Mass.    510.     See    also 
Hoadley  v.  County  Com'rs,  105  Mass.  519;  Gleason  v.  McKay,  134 
Mass.  419. 

The  case  mostly  relied  on  by  the  plaintiff  is  Liverpool  Ins.  Co.  v. 
Massachusetts,  10  Wall.  5GG.  which  was  taken  to  the  Supreme  (  lourt  of 
the  United  States  on  a  writ  of  error  from  this  court.     See  Oliver  v. 
Insurance  Co.,  100  Mass.  531.     It  was  a  bill  in  equity,  filed  by  the 
treasurer  of  the  commonwealth,  under  St.  18G2,  c.  224,  §  11,  to  restrain 
the  defendant  from  prosecuting   its   business,   until    the  tax  assessed 
upon  it  by  section  2  of  the  statute  had  been  paid.     This  section  pro- 
vided that  "  each  fire,  marine,  and  fire  and  marine  insurance  company 
incorporated  or  associated  under  the  laws  of  any  government  or  State, 
other  than  one  of  the  United  States,"  should  annually  pay  a  certain 
tax.     The  defendant  was  an  English  company,  formed  for  the  busim 
of  insurance,  and  organized  under  a  deed  of  settlement.     Its  property 
was  divided  into  transferable  shares.     It  had  power  to  sue  ami  be  sued 
by  the  name  of  its  chairman,  and  a  suit  did  not  abate  by  reason  of  the 
death  of  such  officer.     The  company  could  sue  its  own   members,  and 
be  sued  by  them.     Execution  on  any  judgment  recovered   againsl  the 
company  could  be  issued  against  any  proprietor.     The  statute  under 
which  it  was  formed,  and  subsequent  statutes,  declared  that  it  Bhould 
not  be  deemed  to  be  incorporated.     The  company    was  composed  iu 


618  LIMITED    PARTNERSHIPS.  [CHAP.  IX. 

part  of  British  subjects,  and  in  part  of  citizens  of  the  State  of  New 
York.  This  court,  after  stating  that  it  was  not  a  pure  corporation  nor 
a  pure  partnership,  but  was  an  association  intermediate  between  cor- 
porations known  to  the  common  law  and  ordinary  partnerships,  and 
was  so  far  clothed  with  corporate  powers  that  it  might  be  treated,  fur 
the  purposes  of  taxation,  as  an  artificial  body,  proceeded  to  say: 
"  We  think  the  defendants  are  an  association  of  the  kind  to  which  the 
Statute  of  18G2  was  expressly  intended  to  apply,  as  well  as  to  bodies 
wholly  corporate  in  their  character ;  and  that,  being  permitted  by  the 
comity  of  our  laws  to  exercise  their  functions  within  this  common- 
wealth, they  can  claim  no  exemption  from  regulations  appropriate  to 
their  collective  action  on  account  of  the  citizenship  or  nationality  of 
their  individual  members."  In  the  Supreme  Court  of  the  United  States 
the  decree  of  this  court  was  affirmed,  on  the  ground  that  the  company 
was  a  foreign  corporation  ;  but  Mr.  Justice  Bradley,  while  agreeing  in 
the  result,  differed  on  the  question  whether  the  company  was  a  cor- 
poration. He  was  of  opinion  that  it  was  one  of  those  special  partner- 
ships called  "joint-stock  companies,"  and  that  it  could  not  sue  or  be 
sued  in  this  country  without  legislative  aid.  This  view  of  Mr.  Justice 
Bradley  is  in  accord  with  the  view  of  this  court,  and  we  are  not  aware 
that  the  view  taken  by  the  Supreme  Court  of  the  United  States  has 
been  followed  in  this  commonwealth.  The  decisions  which  we  have 
already  cited  show  that  a  foreign  joint-stock  company  is  considered  as 
an  association  or  partnership,  and  not  as  a  corporation. 

An  examination  of  the  statutes  further. shows  that  the  legislature  has 
clearly  recognized  the  distinction  between  foreign  corporations  and 
associations  ;  and  that,  where  it  has  deemed  it  best  that  an  act  should 
apply  to  an  association  as  well  as  to  a  corporation,  it  has  said  so  in 
plain  language.  Thus,  St.  1882,  c.  106,  relating  to  the  taxation  of 
foreign  mining,  quarrying,  and  oil  companies,  and  requiring  the  ap- 
pointment of  an  agent  here,  upon  whom  process  may  be  served,  uses 
the  language  "  even'  corporation,  company,  or  association."  St.  1887, 
c.  214,  in  section  1,  provides:  "When  consistent  with  the  context, 
and  not  obviously  used  in  a  different  sense,  the  term  '  company  '  or 
'  insurance  company,'  as  used  herein,  includes  all  corporations,  associa- 
tions, partnerships,  or  individuals  engaged  as  principals  in  the  business 
of  insurance."  The  language  is  the  same  in  St.  1894,  c.  522,  §  1. 
By  St.  1888,  c.  429,  §  11,  "  fraternal  beneficiary  corporations,  associa- 
tions, or  societies,"  organized  under  the  laws  of  another  State,  and  then 
doing  business  here,  were  allowed  to  continue  business  without  incor- 
porating under  the  act.  But  by  St.  1892,  c.  40,  §  1,  this  was  amended 
by  striking  out  the  words  "  associations  or  societies."  St.  1884,  c. 
230.  requires  "  ever}'  corporation  established  under  the  laws  of  any 
other  State  or  foreign  countiy,"  and  hereafter  having  a  usual  place  of 
business  here  before  doing  business,  to  appoint  in  writing  the  com- 
missioner of  corporations,  or  his  successor  in  office,  to  be  its  true  and 
lawful  attorney,   upon  whom    process  might  be  served.     St.   1888,  a 


§  2.]  WHO   MAY    COMPOSE    THEM.  619 

321,  allows  "manufacturing  corporations  established  under  the  la* 
other  States,"  which  have  complied  with  the  provisions  of  St  1884,  c. 
330,  to  purchase  and  hold  such  real  estate  here  as  may  be  accessary 
for  conducting  their  business.  By  St.  1895,  c.  84,  "  foreign  corpora- 
tions engaged  in  the  business  of  selling  or  negotiating  bonds,  mort- 
gages, notes,  or  other  choses  in  action"  are  made  subject  to  the  pro- 
visions of  St.  1884,  c.  330.  St.  1896,  c.  391,  contains  a  provision 
relating  to  the  personal  liability,  under  certain  circumstances,  of  the 
officers  and  members  or  stockholders  in  any  corporation  established 
under  the  laws  of  any  other  State  or  other  country.  See  also  M. 
1895,  c.  157.  Many  other  instances  of  legislation  might  be  given 
where  the  distinction  between  a  corporation  proper  and  a  mere  associa- 
tion or  organization  is  shown  to  be  clearly  in  mind. 

Unless  the  principal  defendant  can  be  considered  a  corporation,  it 
cannot  be  sued  here  under  the  name  which  the  laws  of  Pennsylvania 
authorize  it  to  use.  Such  laws  have  no  extraterritorial  force  or  effect. 
The  trustee,  therefore,  was  properly  discharged. 

In  the  opinion  of  a  majority  of  the  court,  the  order  discharging  the 
trustee,  and  dismissing  the  action,  must  be  affirmed. 


§  2.    Who  May  Compose  Them. 

THE  CONTINENTAL   NAT.    BANK    v.    STRAUSS. 
137  N.  Y.  148.     181)3. 

Grat,  J.  This  is  an  appeal  of  the  plaintiff  from  a  judgment  of  the 
Superior  Court  of  New  York  city,  dismissing  its  complaint,  in  an 
action  brought  upon  a  promissory  note,  as  against  the  defendant 
Strauss.  The  complaint  alleged  that  the  firm  of  A.  Hoexter  A:  Com- 
pany, an  indorser  upon  the  note,  was  composed  of  the  defendant, 
Augustus  Hoexter,  Leo  W.  Hoexter,  and  Henry  Strauss,  as  general 
partners.  Strauss  answered,  denying  the  allegation,  and  alleged  that 
A.  Hoexter  &  Co.  was  a  limited  partnership,  duly  formed  under  the 
law,  and  in  which  he  was  the  special  partner.  Upon  the  trial  coming  on, 
the  plaintiff  was  at  first  disposed  to  rest  its  case  against  Strauss  upon 
certain  evidence  given  b\-  a  clerk,  who  had  been  employed  by  the  firm, 
to  the  effect  that  he  had  frequently  seen  Strauss  come  into  the  Btore, 
converse  with  the  Hoexters  and  look  at  the  books,  and  thai  his  name 
appeared  on  the  sign  as  a  partner.  He  did  not  know  if  there  was  any 
partnership  agreement,  and,  upon  being  cross-examined,  be  said  thnt 
Strauss' name  was  given  as  special  partner  on  the  sign,  upon  which 
the  other  names  appeared  as  general  partners.  The  trial  judge  hold. 
ing  that  this  proof  only  showed  Strauss  to  be  a  special  partner,  the 
plaintiff  was  allowed  to  put  in  further  proofs;  which  consisted  in  cer 


620  LIMITED    PARTNERSHIPS.  [CHAP.  IX. 

tain  evidence  of  Strauss  given  in  proceedings  by  him  as  the  receiver  of 
the  firm  against  A.  and  L.  Hoexter,  and  in  the  pleadings  and  proceed- 
ings in  au  action  instituted  by  him  against  the  firm  to  obtain  a  dissolu- 
tion, an  accounting  and  the  sequestration  of  its  assets  through  a 
receivership.  From  this  evidence  it  was  made  to  appear  that  the 
difficulties  of  the  partnership  arose  out  of  the  misconduct  and  malver- 
sations of  Augustus  Hoexter,  which  culminated,  before  the  expiration 
of  the  term  of  the  partnership,  in  the  wasting  or  impairment  of  its 
assets,  in  its  financial  embarrassment,  and,  as  the  result  of  judgments 
against  him  which  were  sought  to  be  enforced  as  against  his  partner- 
ship interest,  in  his  making  an  assignment  for  the  benefit  of  creditors 
and  absconding  immediate!}'  thereupon.  It  appeared  from  the  evi- 
dence, also,  that  Strauss  had  paid  in  his  contribution  of  $50,000  of 
special  capital  and  nothing  appeared  to  connect  him,  directly  or  inferen- 
tially,  with  the  firm  as  a  general  partner.  The  trial  judge  dismissed 
the  complaint,  at  the  close  of  the  plaintiffs  case,  as  to  Strauss  ;  upon 
the  ground  that  there  was  no  evidence  to  make  him  liable  as  a  general 
partner.     We  think  he  could  not  have  ruled  otherwise. 

The  plaintiff  was  bound,  under  the  issue  tendered,  to  establish 
affirmatively  that  Strauss  was  a  general  partner,  if  not  as  between  him 
and  the  other  partners,  presumptively  as  to  creditors  of  the  firm,  be- 
fore it  was  entitled  to  recover.  But  in  this  it  failed  ;  and  the  extent 
of  the  proof  was  to  show  that  he  was  a  special  partner.  If  plaintiff 
had  given  any  evidence  tending  to  show  that  Strauss'  act  had  been 
such  as  to  involve  him  with  the  management  or  conduct  of  the  partner- 
ship affairs,  or  that  the  provisions  of  the  limited  partnership  law  had 
been  violated  in  some  way  so  as  to  make  him  liable  as  a  general  part- 
ner, the  burden  would  then  have  been  shifted  to  his  shoulders,  and 
he  would  have  been  obliged  to  repel  the  presumptions  arising  from 
such  evidence,  by  other  evidence.  But  it  is  not  for  Strauss,  when  the 
plaintiff's  evidence  simply  exhibited  him  as  a  special  partner  of  the 
firm,  to  show  that  the  statute  had  been  complied  with  in  all  respects, 
'and  that  in  none  had  there  been  such  acts  of  commission  or  of  omis- 
sion, in  violation  of  the  statute,  as  to  convert  his  liability  into  a  gen- 
eral one  as  to  firm  creditors.  The  maxim  omnia  praesumuntur  rite 
esse  acta  is  applicable  when  the  validity  of  the  proceedings  taken  under 
a  statute  is  in  question,  and  the  status  of  a  party  thereunder  remains 
secure,  until  his  assailant  has  rebutted  the  presumption  by  evidence 
showing,  or  tending  to  show,  material  violations  or  jurisdictional  irreg- 
ularities, through  occurrence  of  which  the  statutory  proceedings  are 
invalidated  and  are  no  longer  a  defence.  That  question  ma}'  be  one  of 
law  for  the  court  to  decide,  upon  a  construction  of  statutory  provi- 
sions ;  or  it  may  be  one  of  fact,  which  as  the  fact  may  be  decided  by 
the  jury,  will  determine  the  result  to  the  parties  interested.  In  the 
present  case,  as  the  evidence  was  not  conflicting,  it  was  for  the  court 
to  say  whether  it  tended  to  show  that  the  statutory  provisions  had 
been  violated  by  Strauss  in  such  wise  as  to  cast  upon  him  the  burden 


§2.]  WHO    MAY    COMPOSE    THEM.  621 

of  meeting  and  overcoming  the  plaintiffs  proofs.  Very  correctly,  the 
trial  judge  ruled  that  nothing  militated  against  Strauss'  position  as  a 
special  partner.  His  allegation  in  that  respect  had  been,  so  far,  only 
borne  out  by  the  evidence,  and  every  presumption  was  still  in  his 
favor. 

We  cannot  agree  with  the  learned  counsel  for  the  plaintiff  that  tin- 
fact  of  Leo  Hoexter,  one  of  the  general  partners,  being  a  minor  affected 
the  question  of  Strauss'    position  ami  liability   toward   firm   creditors. 
There  can  be  no  question  but  that  an  infant  may  become  interested  in 
business  as  a  general  partner.     Nothing  forbade  it  at  common  law  and 
nothing  in  the  statutory  law  now  forbids  it.     llis  infancy  was  a  factor 
in  the  situation,  which  enabled  him  to  disaffirm  his  obligations  and 
agreements,  and,  in  thai  respect,  the  privilege  was  a  personal  one  to 
himself.     Infancy  does  not  disable  one   from  entering  into  contra 
and  so  long  as  the  infant  does  not  avail  himself  of  the  privilege  to 
up  his  infancy  in  bar  of,  or  to  avoid,  an  obligation,   his  position   ami 
his  acts  are  as  those  of  any  responsible  person.     Any  other  view  of  his 
situation  would  lead  to  holding  all  his  acts  and  engagements  void; 
whereas  they  are  voidable  merely  at  his  election.    The  Limited  Partner- 
ship Act,  in  requiring  that  such  partnerships  may  consist  of  on< 
more  persons,  who  shall  be  called  general  partners,  who  shall  be  jointly 
and  severally  responsible  as  general  partners  now  are  by  the  law.  has  not 
given  a  definition  of  who  may  be  general  partners,  which  is  at  variance 
with  what  has  been  said.     If  the  general  partner,  or  one  of  t  lie  general 
partners,  is  a  minor,  he,  nevertheless,  is  responsible  for  all  partnership 
engagements  and  will  be.  unless  and  until  he  elects  to  set  up  the  per- 
sonal plea  of  infancy.     lint  that  he  will  do  so  is  not  to  be  presumed. 
To  the  contrary  is  the  presumption.     It  would  be  an  immoral  presump- 
tion to   entertain   that   a  person  who  enters  into   engagements   with 
others  will   resort  to  the  plea  of  infancy  to   avoid   them    thereafter. 
The  law  has,  with  a  great  solicitude  for  the  interests  of  infants,  thrown 
about  them  a  protecting  arm,  and  accords  to  them  the  privilege  to  plead 
their  incapacity,  if  they  desire  to  escape  from  compliance  with,  or  the 
results  of,  some  contract.     It  does  not  and  cannot,  perhaps  unfortu- 
nately, make  a  distinction  in  favor  of  those  who  honestly  seek  to  be 
relieved  of  some  advantage  taken  of  them  in  their  minority,  as  against 
those  who  use  the  plea  of  infancy  to  take  an  advantage  of  others.     The 
law  does  not  compel  them  to  set  up  the  plea  ;  any  more  than  il  stamps 
their  engagements  as  void.     There  is  not  the  slightest  pretence,  ol 
course,  here  that  Leo  Hoexter  ever  did.  or  intended  to.  avail  bimseH  of 
this  plea.     The  fact  of  his  being  a  minor  merely  appeared  in  .-\  idence, 
and  is  availed  of  for  the  argument.     We  hold  that  he  might  1-  a  gen- 
eral partner,  and  that  nothing  in  the  limited  partnership  law  was  in- 
tended to  encourage  the  employment  of  capital  in  trade   » ■>    limiting 
the  liability  of  the  intending  contributor  to  the  capital  invested,  npon 
his  compliance  with  the  provisions  of  that  law.     \\  bile  -run,,-  to  the 
business  community  such  an  obvious  advantage,  it  Becures  to  them,  In 


622  LIMITED   PARTNERSHIPS.  [CHAP.  IX. 

their  dealings  with  the  partnership,  the  fullest  knowledge  about  its 
formation,  duly  and  in  good  faith,  and  requires  in  such  respect  the  ut- 
most exactness  and  good  faith,  and  the  abstention  of  the  special  part- 
ner from  any  interference  with,  or  taking  part  in,  the  conduct  of  the 
business. 

But  the  appellant  further  argues  that  there  was  an  interference  by 
Strauss  with  the  business  of  A.  Hoexter  &  Co.,  which  was  in  violation 
of  the  command  of  the  act,  and  which  fastened  upon  him  the  liabitity  of 
a  general  partner,  in  that  he  brought  the  action  for  the  dissolution  of 
the  partnership  before  the  expiration  of  the  term  fixed  in  its  articles, 
and  became  its  receiver.  What  the  act  inhibits  is  a  dissolution  by  the 
act  of  the  parties  previous  to  the  time  specified  in  the  articles.  It 
would  be  too  great  a  strain  upon  the  reason,  in  my  judgment,  to  say 
that  the  proceedings  in  question  were  within  the  contemplation  and 
the  provision  of  the  law.  One  of  its  sections,  18,  especially  provides 
that  general  partners  shall  be  liable  to  account  to  each  other  and  to  the 
special  partner  for  their  management  of  the  concern,  both  in  law  and 
equity,  as  other  partners  now  are  by  law.  This  appeared  to  be  a  very 
plain  case  for  the  prompt  intervention  of  a  court  of  equit}-  and  for  the 
sequestration  of  the  firm  assets  in  the  hands  of  its  receiver,  upon  facts 
showing  the  condition  of  embarrassment  in  the  affairs  of  the  firm, 
which  Augustus  Hoexter  had  brought  about  by  his  misconduct.  The 
action  was  in  the  interest  of  the  creditors,  as  well  as  of  the  partners, 
and  the  receiver,  as  an  officer  of  the  court,  represented  them  both. 
Strauss  had  a  right  to  take  this  step  to  compel  an  accounting,  and, 
meanwhile,  by  a  receivership  to  hold  and  to  get  in  what  assets  there 
might  be  of  this  firm,  which  had  been  so  badly  wrecked  by  the  fraudu- 
lent acts  of  the  absconding  member. 

His  own  appointment  as  the  receiver  was  a  matter  or  question  of 
propriety  which  concerned  the  creditors  at  the  time,  and  it  was  not  a 
matter  which  in  an}'  way  affected  or  changed  his  legal  relations  as  a 
partner  under  the  articles  of  the  partnership.  The  law  does  in- 
tend that  a  limited  partnership  shall  continue  for  the  term  specified, 
and  that  the  parties  shall  not  terminate  it  sooner  by  their  agreement, 
while  a  going  concern.  It  was  not  the  intention  to  deprive  the  members 
of  those  equitable  rights  which  might  accrue  to  them  as  against  their 
associates  by  reason  of  fraudulent  acts,  the  result  of  which  is,  in  fact, 
to  terminate  or  to  cause  a  stoppage  of  its  business.  In  such  a  case  as 
this,  the  special  partner's  action  is  not  hostile  to  the  creditors,  but, 
presumably,  to  their  advantage. 

These  and  other  questions  have  been  very  full}-  and  satisfactorily 
discussed  at  the  General  Term  below,  and  there  is  no  necessity  to  add 
to  the  discussion  further  than  we  have  done. 

The  judgment  should  be  affirmed  with  costs.1 

1  By  §  .30,  ch.  420,  N.  Y.  Laws,  1897,  only  persons  of  full  age  can  be  members  of 
a  limited  partnership. 


§  °.J  WHO    MAY    COMPOSE    THEM. 

BEXARD,   &c.    CO.    v.   PACKARD    &    CALVIN.    LIMITED. 

Gi  Fed.  309.     1894. 
Dallas,  Circuit  Judge.     The  bill  of  exceptions  Bet  forth  that : 

"  Upon  the  trial  the  evidence  on  the  part  of  the  plaintiff  showed,  as  the 
basis  of  his  snit,  a  written  contract  for  the  construction  of  a  mill,  at  a 
exceeding  five  hundred  dollars,  made  by  plaintiff  with  '  Packard  &  Calvin, 
Ltd.; '  a  company  claiming  to  have  been  organized  under  the  Limited  Partner- 
ship Act  of  Pennsylvania,  approved  June  2,  1874,  and  its  supplements, 
plaintiff's  evidence  further  showed  that  M.  L.  Packard  was  the  \\i:'<-  of  W.  U. 
Packard,  and  that  Tabitha  L.  Calvin  was  the  wife  of  William  J.  Calvin,  ai 
that  these  four  persons,  who  are  the  defendants  in  this  case,  were  the  only 
members  or  stockholders  of  the  said  alleged  limited  partnership,  and  that  they 
had  complied  with  all  the  requirements  of  the  said  act  of  1N71  and  its  supple- 
ments, if  they,  as  two  husbands  and  their  respective  wives,  were  competent, 
under  said  act  and  its  supplements,  to  organize  and  constitute  a  limited  part- 
nership association.     It  further  appeared  by  the  plaintiffs  evidence  that  the 
contract  in  suit  was  signed,  'Packard  &  Calvin.  Ltd .,'  by  only  one  manager  of 
said  alleged  limited  partnership.      The  plaintiff,  having  shown  these 
rested  his  case  ;   and  the  court,  upon  motion  of  defendant's  attorney,  entered 
a  compulsory  nonsuit,  which  the  court  afterwards  refused  to  take  off.'' 

The  question  which  was  raised  in  the  Circuit  Court,  and  which  is  now 
presented  here,  is  whether  the  four  persons  who  had  associated  them- 
selves together  as  stated  in  the  foregoing  extract  arc  HabL  general 
partners  upon  the  contract  sued  on,  notwithstanding  the  fad  thai  it 
was  "made  by  plaintiff  with  Packard  &  Calvin,  Ltd."  The  action 
was  brought  to  enforce  such  supposed  general  liability,  and  the  plaintiff 
contends  that,  to  that  end,  it  should  have  been  sustained.  This  con- 
tention is  put  upon  several  grounds,  which  will  be  separately  disposed 
of,  but  without  extended  discussion. 

1.  The  Pennsylvania  statute  of  June  2,  1874,  which  requires  not  l< 
than  three  persons  to  unite  to  form  a  limited  partnership,  is  complied 
with  whore,  as  in  this  instance,  two  of  the  persons  uniting  are  married 
women,  and  the  others  are  their  respective  husbands.  This  under- 
standing of  the  law  seems  to  be  supported  by  the  opinion  of  the 
Supreme  Court  of  Pennsylvania  delivered  in  the  case  of  Steffen 
Smith,  159  Pa.  St.  207,  28  All.  295;  and.  apart  from  this,  we  have 
no  doubt  of  its  correctness.    .   .  . 

3.  The  proposition  that,  because  the  contract  was  Bigned  "  by  only 
one  manager  of  said  alleged  limited  partnership,"  all  the  members 
thereof  became  generally  liable,  is  untenable.  It  is  founded  on  the 
provision  of  the  Pennsylvania  statute  (section  5)  that  "  no  liability  for 
an  amount  exceeding 'five  hundred  dollars,  excepl  againsl  the  person 
incurring  it,  shall  bind  the  said  association,  unless  reduced  to  writing 
and  signed  by  at  least  two  managers."  But  it  is  quite  plain  thai  the 
net  of  a  single  manager,  in  disregard  of  this  provision,  cannol  have  the 
effect  of  extending  the  liability  of  the  other  members  of  the  association 


624  LIMITED    PARTNERSHIPS.  [CHAP.  IX. 

It  was  intended  for  their  benefit,  and  should  not  be  construed  to  their 
disadvantage.  The  person  so  incurring  a  liability  is  himself  bound, 
but,  as  this  results  from  an  express  exception,  applied  to  him  only,  it 
follows  that  the  legislature  could  not  have  intended  that  his  co-members 
would  be  similarly  bound. 

The  judgment  is  affirmed,  with  costs. 


§  3.    Eequisites  to  their  Formation. 

BUCK  et  al.   v.   ALLEY  et  al. 

145  N.  Y.  488 :  40  N.  E.  236.     1895. 

Andrews,  C.  J.     The  claim  that  section  13  of  the  Limited  Partner- 
ship Act  (1  Rev.  St.  765),  as  amended  by  chapter  661  of  the  Laws  of 
1866,  permits  the  use  b}r  a  limited  partnership  of  the  words  "  and 
Company,"  or  "  &  Co.,"  as  a  part  of  the  firm  name,  to  represent  the 
special  partner,   cannot  be  supported.      The  section,   so  far  as  now 
material,  is  as  follows  :    "  The  business  of  the  partnership  shall  be  con- 
ducted under  a  firm  in  which  the  names  of  the  general  partners  only 
shall  be  inserted,  except  that  where  there  are  two  or  more  general 
partners  the   firm  name   may   consist  of  either  one  or  more  of  such 
general  partners,  with  or  without  the  addition  of  the  words  '  and  Com- 
pany,' or  '  &  Co.,'  and  if  the  name  of  any  special  partner  shall  be  used 
in  such  firm  with  his  privity,  he  shall  be  deemed  a  general  partner  ;  but 
the  said  partnership  shall  put  upon  some  conspicuous  place  on  the  out- 
side and  in  front  of  the  building  some  sign  on  which  shall  be  printed  in 
legible  English  characters  all  the  names  in  full  of  all  the  members  of 
said  partnership,"  etc.     By  the  natural  reading  of  the  section,  the  use 
of  the  words  "  and  Company,"  or  "  &  Co.,"  are  only  permitted  where 
there  are  two  or  more  general  partners,  in  which  case  the  firm  name 
may  consist  of  the  names  of  one  or  more  of  the  general  partners  and  of 
the  addition  "and  Company,"  or  "&  Co.,"  to  represent  the  general 
partners  whose  names  are  not  expressed.     The  section  makes  a  special 
partner  liable  as  a  general  partner,  if  his  name  is  used  in  the  firm  title 
with  his  privity.     It  is  difficult  to  suppose  that  the  legislature,  while 
interdicting  the  use  of  his  name,   except  at  this  hazard,  intended  at 
the  same  time  to  permit  the  use  of  an  addition  to  represent  him.     The 
histonr  of  section  13  strongly  corroborates  this  view.     It  discloses  a 
consistent  purpose  in  the  legislature  from  the  beginning  to  prevent  the 
name  or  the  existence  of  a  special  partner  to  be  indicated  in  the  firm 
name.     The  original  policy  was  doubtless  to  prevent  credit  being  given 
to  a  person  not  liable  as  a  general  partner  for  the  debts  or  liabilities  of 
the  firm,  though  this  policy  has  been  greatly  modified  and  to  a  great 
degree  subverted  by  recent  legislation.     The  original  section  passed  in 


§  3.]  REQUISITES   TO   THEIR   FORMATION.  625 

1822  (chapter  214,  §  4)  required  that  the  business  of  a  limited  partner- 
ship should  be  conducted  ••  under  a  name  or  firm  name  consisting  ol 
the  names  of  all  the  partners  interested,  excepting  special   partm 
whose  names  shall  not  be  used  under  the  penalty  of  being  liabl< 
general  partners."      Section  13  of  the  Limited  Partnership  Act  in  the 
Revised  Statutes  relating  to  the  same  Bubject,  and  which  superseded 
section  4  in  the  Act  of  1822,  omitted  the  requirement  that  the  names  of 
all  the  general  partners  should  be  inserted  in  the  firm  name,  and  in 
place  of  that  requirement  prescribed  that  the  business  should  be  "  eon- 
ducted  under  a  firm  in  which  the  names  of  the  general  partners  only 
shall  be  inserted,  without  the  addition  of  the  word  'Company'  or  any 
other  general  term."     This  was  the  first  enactment  referring  to  the  use 
of  the  addition  "  Company"  in  the  name  of  limited  partnerships,  and 
such  use  was  prohibited.     Under  this  section  the  firm  name  might  be 
that  of  one  or  more  of  the  general  partners,  but  it  could  not  be  supple- 
mented by  the  word  "  Company  "  or  any  other  general  term.     The  firm 
name  might  comprise  the  names  of  all  the  general  partners  or  a  [.art  of 
them  only,  but,  if  part  only  were  named,  the  suggestion  that  there  were 
others  could  not  be   made  through  the  vague  designation  of  "Com- 
pany" or  the  use  of  a  similar  general  word.     The  amendment  of  sec- 
tion  13   by  chapter  47G  of  the  Laws  of  1862   modified  the  provision 
prohibiting  the  use  of  an  addition  contained  in  the  original  section,  and 
declared  that  where  there  are  more  than  two  general  partners  the  linn 
name  may  consist  of  either  two  of  such  partners,  with  the  addition  of 
the   words  "and  Company,''  and  made  provision   for   the   first   time 
requiring  that  a  sign  should  be  placed  on  the  building  occupied  by  the 
partnership  containing  the  names  of  all  the  partners.     The  amendment 
of  1862  was  designed  to  relieve  the  general  partners,  where  there  were 
more  than  two  (all  of  whom  might  desire  to  be  represented  in  the  linn 
name),  from  the  inconvenience  of  having  all  the  names  inserted  m  the 
title,  and  permit  the  addition  "and  Company"  to  be  added  to  repre- 
sent them.     The  amendment  in  no  respect  modified  the  position  <>t  a 
special  partner.     The  amendment  was  not  intended  to  give  him  repre- 
sentation in  the  firm  name.     His  position  was  unchanged,  and  the  pro- 
vision remained  as  originally  enacted,  that  "  if  the  name  ot  the  special 
partner  shall  be  used  in  such  firm  name,  with  his  privity,  he  shall  he 
deemed  a  general  partner."     There  was  obvious  propriety  in  permitting 
aeneral  partners  to  be  represented  by  the  addition  -and  Company, 
but  none  in  view  of  the  policy  of  the  legislature  to  extend  tins  privilege 
to  special  partners.      Section   13  was  again  amended  by  chapter  18  of 
the  Laws  of  1864  by  removing  the  restriction  in  the  amendment  ol 
1862  of  the  use  of  the  addition  to  the  case  where  there  were  more  than 
two  general  partners,  and  allowing  it  to  be  used  »  where  there  are  two 
or  more;"  and  the  section  was  again  amended  by  chapter  661  ol  the 
Laws  of  1866,  which  did  not  change  the  Bection  in  any  respect  relevant 
to  the  present  case  from  what  it  was  under  the  amendment  ol    L86-. 
This  review  of  the  course  of  legislation  seem,  to  3how  beyond  reason 

40 


626  LIMITED    PARTNERSHIPS.  [CHAP.  IX. 

able  doubt  that  the  legislature,  from  the  time  of  the  Act  of  1822  through 
all  the  changes  in  the  law  on  the  subject  of  the  firm  name,  have  main- 
tained the  principle  that  the  firm  name  of  a  limited  partnership  should 
represent  only  general  partners,  and  that  the  modifications  intended  by 
the  amendments  in  the  subsequent  revisions  of  section  13  were  designed 
to  remove  the  stringency  of  the  original  enactment,  so  that  general 
partners  might  be  represented  in  the  firm  name  either  by  specification 
or  by  inclusion  under  the  addition  "and  Company."  This  interpreta- 
tion of  the  statute  leads  to  the  conclusion  that  the  use  of  the  firm  name 
of  W.  S.  Alle}'  &  Co.,  in  the  business  in  which  the  defendant  William 
S.  Alley  was  the  sole  general  partner,  and  the  defendants  Ferdinand  T. 
Hopkins  and  Thomas  H.  Thomas  were  special  partners  only,  was  un- 
authorized, and  in  violation  of  the  implied  prohibition  of  section  13  of 
the  Limited  Partnership  Act. 

The  remaining  question  is  whether  its  use  in  this  case,  made,  as  the 
certificate  shows,  with  the  privily  of  the  special  partners,  rendered  them 
liable  as  general  partners  for  the  debts  of  the  firm.  In  Ward  v.  Newrell, 
42  Barb.  482,  the  question  was  presented  and  considered  b}^  Clerke,  J., 
who  delivered  the  prevailing  opinion  in  that  case,  and  who  "  was 
inclined"  to  the  opinion  that  such  a  firm  designation  rendered  the 
special  partners  liable  as  general  partners,  but  the  judgment  proceeded 
on  another  ground.  In  no  case  in  this  State,  so  far  as  we  can  ascertain, 
has  it  been  so  adjudged  prior  to  the  decision  in  the  present  case.  The 
question  depends  upon  the  construction  of  the  statute  ;  and  in  constru- 
ing a  statute  all  its  provisions  may  be  considered,  to  arrive  at  the  inten- 
tion of  the  legislature.  The  remark  of  Cowen,  J.,  in  Bowen  v.  Argall, 
24  Wend.  501,  that  "  No  doubt  the  provision  of  1  Rev.  St.  763,  prescrib- 
ing the  manner  of  instituting  limited  partnerships,  must  be  substantially 
complied  with,  or  the  creditors  may  treat  the  members  of  the  firm  as 
general  partners,"  may  be  admitted  as  stating  a  true  general  principle 
applicable  to  the  construction  of  the  Limited  Partnership  Act.  But  he 
held  in  that  case  that  it  is  not  every  departure  from  the  provisions  of 
the  act  which  would  subject  a  special  partner  to  a  general  liability. 
There  a  general  partner  had  made  a  general  assignment  for  the  benefit 
of  creditors,  which  provided  for  the  payment  of  a  debt  due  to  a  special 
partner  ratably  with  the  other  creditors  of  the  firm,  which  was  held  by 
the  chancellor  in  Mills  v.  Argall,  6  Paige,  577,  to  be  a  violation  of  the 
twenty-third  section  of  the  Limited  Partnership  Act,  and  Judge  Cowen, 
in  his  opinion,  assuming  the  correctness  of  the  decision  of  the  chan- 
cellor, said  :  "I  see  nothing  in  the  act  declaring,  as  a  consequence  of 
an  assignment  or  other  act  providing  for  the  forbidden  preference,  that 
the  special  partner  should  thereb\-  become  liable  as  a  general  one.  The 
only  consequence  of  the  construction  contended  for  by  the  plaintiff  in 
error  would  be  the  avoiding  of  the  partnership  provision  for  the  benefit 
of  other  partnership  creditors." 

Coming  to  a  particular  consideration  of  the  question  now  presented, 
and  looking  at  the  Limited  Partnership  Act,  the  first  thing  which  strikes 


§  3.]  REQTT1SITES   TO   THEIR   FORMATION.  C27 

the  attention  is  that  section  13  contains  only  an  implied  prohibition  of 
the  use  of  the   addition  "  and  Company,"  or  "  &  Co.,"  to  designate  a 
special  partner,  and  does  not  declare  any  consequence  of  such  unauthor- 
ized addition,  but  that  the  section  does  affirmatively  declare  that  when 
the  name  of  the  special  partner  shall  be  nsed  in  the  firm  name  with  his 
privity  "  he  shall  be  deemed  a  general  partner."     It  affixes  the  penalty 
to  the  use  of  the  name  only.     This  is  not  the  only  instance  where  the 
penalty  of  liability  as  a  general  partner  is  imposed  in  express  terms  for 
violations  of  the  provisions  of  the  act.      Indeed,  it  is  difficult,  on  an 
examination  of  the  various  provisions,  to   escape   the  conclusion  that 
where  the  legislature  intended  this  result  to  follow,  it  so  declared  in  un- 
mistakable terms.    The  eighth  section  declares  that,  if  any  false  state- 
ment be  made  in  the  certificate  or  affidavit   required  to  be  filed  <>n  the 
organization  of   the  partnership,   "  all  the  persons  interested  in  such 
partnership  shall  be  liable  for  all  the  engagements  thereof  as  general 
partners."     The  case  of  Van   Ingen  v.  Whitman,  G2  N.  Y.  1  18,   and 
Durant  v.  Abendroth,  GO  N.  Y.  148,  were  founded  on  a  violation  of 
this  section.     Section  9  declares  a  similar  penalty  if  the  publication  of 
the  terms  of  the  partnership  shall  not  be  made  as  required  thereby,  and 
the  special  partner  was  held  liable  for  a  non-compliance  with  this  sec- 
tion in  Smith  v.  Argall,  G  Hill,  479,  which  was  affirmed  on  error  (8  Denio, 
435),  the  court  saying:  "  The  consequence  is  declared  in  plain  terms; 
the  partnership  shall  be  deemed  general."    The  eleventh  section,  which 
prescribes  the  manner  of  renewing  or  continuing  a  limited  partnership, 
declares:    "And    every    such    partnership    which    shall    be    otherwise 
renewed  or  continued,  shall  be  deemed  a  general   partnership."     Sec- 
tion 12  provides  that  every  alteration  "  made  in  the  name  of  the  part- 
ners, in  the  nature  of  the  business,  or  in  the  capital  or  shares  thereof, 
or  in  any  other  matter  specified  in   the  original  certificate,  shall   In- 
deemed   a  dissolution    of   the   partnership,   and   any   such   partnership 
which  shall  be  in  any  manner  carried  on  after  any  such  alteration  shall 
have  been  made,  shall  be  deemed  a  general  partnership,  unless  renewed 
as  a  special  partnership  according  to  the  provisions  of  the  last  section." 
In  Beers  v.  Reynolds,  11  N.  Y.  97.  the  special  partner,  before  the  time 
fixed  in  the  certificate  for  the  termination  of  the  partnership,  sold  out 
his  interest  to  the  general  partner,  and  took  a  mortgage  on  the  goods 
to  secure  the  consideration.     It  was  held  that  this  was  a  violation  of 
the  twelfth  section,  and  that  the  special  partner  was  liable  as  a  general 
partner  to  a  creditor  who  dealt  with  the  partnership  afterwards  without 
notice.    Section  13,  as  stated,  prescribes  the  penalty  oi  general  liability 
where  the  name  of  the  special  partner  is  used  in  the  firm  name  with  his 
privity.      Section  17  prohibits  the  special  partner  from  transacting  any 
business  on  account  of  the  partnership  as  agent,  attorney,  or  otherwise, 
and  declares  that  "if  he  shall  interfere  contrary  to  these  provisions,  he 
shall  be  deemed  a  general  partner."    We  have  said  that  no  case  in  this 
State  has  imposed  the  penalty  of  general  liability  upon  a  special  partner 
for  having  the  addition  of'-  Company"  to  the  firm  name,  where   there 


628  LIMITED    PARTNERSHIPS.  [CHAP.  IX. 

was  but  one  general  partner.  Nor  have  we  found  any  case  imposing 
such  liability  for  an}-  departure  from  the  act,  except  where  this  penalty 
is  specifically  prescribed.  The  case  of  Bank  v.  Gould,  5  Hill,  309,  is 
not  an  exception.  In  that  case  the  special  partner  had  drawn  out  his 
contribution  of  capital,  and  it  had  been  invested  in  real  estate,  used  in 
the  business,  the  title  to  which  was  conveyed  to  all  the  partners,  general 
and  special,  as  tenants  in  common.  The  court  held  that,  assuming  that 
this  was  done  with  the  concurrence  of  the  special  partner,  it  was  a 
violation  of  the  seventeenth  section  of  the  act  prohibiting  the  special 
partner  transacting  any  business  on  account  of  the  partnership.  The 
withdrawal  of  capital  contributed  by  him  as  special  partner  violates 
section  15  of  the  act,  and  the  court  further  held  that  this  would  make 
him  liable  as  a  general  partner.  We  are  not  prepared  to  say  that  an 
act  so  subversive  of  the  whole  policy  of  the  statute  might  not  be  justly 
visited  by  the  imposition  of  a  liability  as  general  partner,  even  if  not  so 
declared.  But  the  withdrawal  of  capital  by  a  special  partner  is  a  plain 
violation  of  section  12.  It  was  an  alteration  in  the  capital  or  shares  of 
the  business.  Judge  Bronson,  in  the  case  cited,  referred  to  the  fact 
that  the  legislature  evidently  intended  that  the  legal  title  to  all  the 
partnership  property  should  be  vested  in  the  general  partners.  It  was 
a  most  material  change  in  the  capital  to  withdraw  the  contribution  of 
the  special  partner  from  the  business  and  put  it  into  land,  the  title  to 
which  was  vested  in  all  the  partners  jointly,  including  the  special 
partner.  Moreover,  if  the  purchase  of  the  mill,  with  the  co-operation 
of  the  special  partner,  was  doing  business  in  violation  of  the  seven- 
teenth section,  the  withdrawing  of  his  capital  by  his  participation  was 
an  intermeddling  with  the  business  also.  Both  sections  12  and  17 
specially  declare  the  penalty  of  general  liability  for  a  violation  of  their 
provisions. 

It  is  claimed  in  behalf  of  the  plaintiff  that  as  section  1  of  the  act 
declares  that  limited  partnerships  may  be  formed  "upon  the  terms,  with 
the  rights  and  powers,  and  subject  to  the  conditions  and  liabilities 
herein  [in  the  act]  prescribed,"  and  as  section  13  impliedly  prohibits 
the  use  of  the  addition  "  Company  "  to  a  firm  name  where  there  is  lint 
one  general  partner,  the  conditions  upon  which  a  limited  partnership  is 
permitted  have  not  been  complied  with,  and  that  the  parties  stand  as  if 
the  formation  of  a  limited  partnership  had  never  been  attempted.  There 
was  no  irregularity  other  than  the  one  specified.  The  certificate  made 
and  filed  stated  the  "  name  or  firm  under  which  the  partnership  is  to  be 
continued."  Section  4.  The  only  defect  in  the  proceedings  is  that  the 
firm  name,  W.  S.  Alley  &  Co.,  was  not  permitted  by  section  13,  under 
the  circumstances.  In  a  general  sense,  the  use  of  a  correct  firm  name 
may  be  a  condition.  But  the  statute  carefully  enumerates  certain  orig- 
inal conditions,  the  violation  of  which  shall  impose  a  general  liability. 
The  condition  as  to  the  use  of  the  name  of  the  special  partner  in  section 
13,  and  the  condition  as  to  publication  of  notice  in  section  9,  are  illus- 
trations.    Why  should  the  legislature  have  made  particular  mention  of 


§  3.]  REQUISITES    TO    THEIR   FORMATION. 

these  and  other  failures  to  comply  with  the  act.  and  prescribed  the 
penalty  of  general  liability  in  terms,  if  it  was  intended  that  every  failure 
to  follow  the  precise  directions  of  the  statute  should  be  Followed  by  this 
result?  The  act  should  have  a  fair  and  reasonable  construction,  and 
we  think  the  defect  in  the  present  ease  did  nut  render  the  proceeding 
void  from  the  beginning,  or  impose  on  the  special  partner  a  general 
liability.  See  Peckham.  J..  Manhattan  Co.  v.  Laimbeer,  108  N.  V. 
By  recent  legislation  the  strict  policy  which  prevailed  under  the  original 
enactment  has  been  departed  from.  It  is  now  possible  to  continue  the 
use  of  a  former  firm  name  on  the  constitution  of  a  new  partnership, 
although  the  names  of  those  who  become  special  partners  in  the  new 
firm  are  found  in  the  original  firm  name.  Laws  1881,  c.  425;  Laws 
1893,  c.  263.  We  are  not  required,  in  the  absence  of  binding  authority, 
to  impose  a  liability  upon  a  special  partner  upon  a  technical  and  severe 
construction  of  the  statute,  not  in  harmony  with  legislative  policy  indi- 
cated by  recent  legislation.  A  party  dealing  with  a  firm  having  the 
word  '•  Co."  attached  to  the  firm  name  would  not  be  likely  to  give  credit 
ou  the  faith  of  that  addition  without  knowing  who  were  represented  by 
it.  The  facts  in  relation  to  the  organization  of  the  special  partnership 
of  W.  S.  Alle}"  &  Co.  were  matters  of  public  record,  and  it  is  not 
claimed  that  the  names  and  character  of  the  several  co-partners  were 
not  posted  on  the  building  as  required  by  the  act.  The  case  of  Andrew  - 
v.  Schott,  10  Pa.  St.  47.  in  the  Supreme  Court  of  Pennsylvania,  which 
has  been  followed  in  some  of  the  other  courts  in  that  State,  construed  a 
section  in  the  Limited  Partnership  Act  of  that  State,  similar  to  section  13 
of  the  Revised  Statutes  in  the  act  of  this  State.  The  court  got  by  the 
difficulty  that  the  legislature  had  not  declared  that  the  use  of  the  word 
"  Company"  should  make  the  special  partner  liable  as  a  general  partner, 
by  saying:  "No  doubt  the  legislature  supposed  that  the  latter  part  of 
the  sentence  '  he  shall  be  a  general  partner,'  referred  to  the  whole  sec- 
tion." In  this  State  the  section  has  been  frequently  amended,  and  the 
phraseology  upon  the  point  now  in  question  has  remained  unchanged. 
The  court  is  not  called  upon  to  remedy  an  inadvertence  or  omission 
(if  any  occurred)  in  order  to  impose  the  penalty  of  general  liability. 
The  conclusion  we  have  reached  in  this  case  does  not,  we  think,  con- 
travene the  statute,  while  at  the  same  time  it  is  not  inconsistent  with 
the  present  public  policy  of  the  State.  The  judgment  of  the  General 
Term  and  of  the  Circuit  should  be  reversed,  and  a  new  trial  ordered, 
with  costs  to  abide  the  event.     All  concur. 

Jmhjim  nt  ,;  r.  r 


630  LIMITED    PARTNERSHIPS.  [CHAP.  IX. 

GROVES   v.    WILSON  et  al. 
168  Mass.  370:  47  K  E.  100.     1897. 

Prior  to  June  10,  1887,  Wilson,  Cassells,  &  Hareson  were  partners, 
under  the  name  of  Wilson,  Cassells,  &  Co.,  in  Boston,  when  the  firm 
was  dissolved  and  the  same  parties  formed  a  limited  partnership 
under  the  same  name.  Cassells  and  Hareson  were  the  general  part- 
ners and  Wilson  the  special  partner;  their  place  of  business  remained 
as  before,  and  the  sign  over  it  was  the  same  as  had  heretofore  been 
used  under  their  general  co-partnership.  The  new  firm  succeeded  to 
the  business  of  the  former  one,  having  the  consent  of  all  the  members 
of  the  firm  thereto,  if  they  were  legally  able  to  give  such  consent. 
All  the  provisions  of  the  statutes  relating  to  limited  partnerships 
were  duly  complied  with,  unless  the  facts  above  set  forth  show  a 
failure  so  to  comply.  The  partnership  having  become  unsuccessful 
in  business,  Cassells,  without  the  consent  and  knowledge  of  the  other 
partners,  borrowed  $400  of  one  Stetson,  gave  a  promissory  note  there- 
for, signed  Wilson,  Cassells,  &  Co.,  and  then  used  the  funds  for  his 
own  personal  purposes.  Plaintiff  was  the  holder  in  good  faith  and 
for  value  of  said  note.  If  the  defendant  Wilson  at  the  time  of 
giving  the  note  was  liable  as  a  general  partner  for  the  amount  thereof 
in  the  firm  of  Wilson,  Cassells,  &  Co.,  judgment  was  to  be  entered 
against  him  for  the  amount  thereof  and  interest;  otherwise  the  judg- 
ment of  the  Superior  Court  for  him  was  to  be  affirmed. 

S.  L.  Whipple,  for  defendant  Wilson. 

F.  S.  Hesseltine  (R.  R.  Gihnan,  with  him),  for  the  plaintiff. 

Barker,  J.  Limited  partnerships  are  regulated  in  this  common- 
wealth by  the  provisions  of  Pub.  St.  c.  75,  and  of  St.  1887,  c.  248. 
By  a  clause  of  Pub.  St.  c.  75,  §  3,  if  the  name  of  a  special  partner 
was  used  in  the  firm  name,  he  was  made  liable  as  a  general  partner, 
unless  the  name  of  the  special  partner  so  used  was  his  surname  and 
was  also  the  surname  of  a  general  partner.  But  the  limited  partner- 
ship in  which  the  defendant  was  a  special  partner,  and  in  the  name 
of  which  his  surname  appeared,  was  formed  after  the  passage  of 
St.  1887,  c.  248,  the  first  section  of  which  allows  such  a  partnership, 
which  succeeds  to  the  business  of  a  former  firm,  to  adopt  and  use  the 
name  of  such  firm,  instead  of  the  name  prescribed  by  Pub.  St.  c.  75, 
§  3,  with  the  consent  of  the  members  of  the  former  firm,  which  con- 
sent was  given  in  the  present  case.  The  plaintiff  contends  that,  while 
the  later  statute  made  it  lawful  for  the  new  firm  to  have  the  name  of 
the  old,  yet  the  provision  of  the  former  statute,  making  the  special 
partner  whose  name  appeared  in  the  name  of  the  limited  partnership 
liable  as  a  general  partner,  was  not  specifically  repealed,  and  makes 
the  defendant  liable  as  a  general  partner.  The  language  of  St.  1887, 
c.  248,  is  general,  and  is  apt  to  include  the  case  of  a  limited  partner- 
ship formed  to  succeed  to  the  business  of  a  former  firm,  where  the 


§  3. J  REQUISITES   TO   THEIR   FORMATION.  631 

same  persons  compose  the  two  firms,  and  one-  or  mora  of  them  became 
a  special  partner  in  the  new  firm.  We  must  take  this  permission  of 
St.  1887,  c.  248,  §  1,  with  the  fourth  section  of  the  same  statute. 
amending  Pub.  St.  c.  7."..  j  li'.  as  to  the  liability  of  special  parti 
and  with  the  fifth  section,  repealing  so  much  of  Pub.  St.  c.  7">.  as  is 
inconsistent  with  St.  1887,  c.  218.  The  result  is  that,  when  the  use 
of  the  name  of  a  special  partner  in  the  name  of  a  limited  partnership 
is  authorized  by  St.  1887,  c.  248,  §  1,  there  i-  a  plain  implication  in 
the  fourth  section  of  that  statute  that  the  special  partner  is  not  liable 
as  a  general  partner.  This  implication  is  in  be  given  effect  by  hold- 
ing that  the  provisions  <.f  Pub.  St.  c.  75,  §  •"..  arc  in  thai  respect  mod- 
ified by  the  later  statute,  the  repeal  extending  to  such  cases,  but 
leaving  the  provision  of  Pub.  St.  c.  7."..  §  :'.,  to  operate  in  eases  where 
the  use  in  the  name  of  the  limited  partnership  of  the  name  of  a  special 
partner  is  not  authorized  by  the  statutes  construed  together. 

Judgrtu  nt  affirna  d. 


PIERCE    v.    BRYANT   kt  al. 

:>  Allen  (Mass.),  91.     1862. 

The  certificate  required  by  the  statute  was  duly  acknowledged  and 
recorded  February  K'»,  lM'.o;  l>ut  Ooulding,  the  special  partner,  con- 
tributed his  $5,000  as  follows:  On  February  24  he  paid  $2,000  in 
cash,  and  delivered  to  Bryant,  the  general  partner,  a  note  for  $1,000, 
signed  by  George  Staples,  payable  on  demand  to  Betsey  A.  Clark  or 
order,  and  not  indorsed  by  her;  also  two  notes  signed  by  himself, 
for  31,030,  each  payable  to  Bryant's  order  six  months  after  date. 
On  February  27,  18G0,  the  two  notes  of  Gould ing  were  indorsed 
by  Bryant,  and  delivered  to  firm  creditors  who  received  them  as  cash 
in  payment  of  their  claims.  The  Staples'  note  was  paid  by  him  to 
the  firm  April  2,  1860.  Both  Staples  and  (ioulding  were  possessed  of 
large  property. 

F.  H.  Dewey,  for  plaintiff. 

D.  Foster  and  T.  L.  Nelson,  for  Gould  ing. 

Bioelow,  C.  J.  If  we  adopt  the  most  liberal  rule  of  interpreta- 
tion, in  construing  the  statute  regulating  the  formation  of  special 
partnerships,  Gen.  Sts.  c.  •">•">.  we  cannot,  without  violating  its  plain 
and  explicit  language,  hold  that  the  defendant  Goulding  is  exempt 
from  liability  as  a  general  partner  for  the  debts  of  the  firm.  There 
was  no  substantial  compliance  by  him  with  one  of  the  essential  requi- 
sitions of  the  statute.  At  the  time  the  co-partnership  was  formed. 
and  for  a  long  time  thereafter,  he  did  not  contribute  i"  the  common 
stock  the  specified  sums,  which  lie  stipulated  to  furnish  in  actual 
cash  payment  as  capital.  In  this  particular,  the  certificate  which  he 
signed  and  acknowledged  and  caused  to  be  refolded  in  the  registry 


632  LIMITED    PARTNERSHIPS.  [CHAP.  IX. 

of  deeds  contained  a  false  statement.  It  certainly  requires  no  argu- 
ment to  prove  that  the  promissory  notes  of  the  supposed  special 
partner,  payable  on  time  to  the  general  partner,  and  which,  when 
negotiated,  constituted  a  debt  for  which  both  members  of  the  firm 
were  liable,  was  in  no  legitimate  sense  a  contribution  of  money  to 
the  common  stock.  Such  a  procedure  was  a  clear  violation  of  the 
letter  and  spirit  of  the  statute.  It  created  no  fund  or  capital  to 
which  persons  dealing  with  the  firm  might  look  for  the  payment  of 
their  debts,  but  substituted  in  its  place  a  debt  for  which  each  part- 
ner was  severally  liable.  Nor  can  the  note  of  a  third  person,  not 
indorsed  by  the  payee,  and  of  which  Goulding  and  the  co-partner- 
ship were  equitable  owners,  be  regarded  as  equivalent  to  money.  A 
note  is  an  agreement  to  pay  money.  It  cannot  be  treated  as  cash. 
It  is  quite  immaterial  that  it  does  not  appear  that  credit  was  given  to 
the  firm  by  the  plaintiffs,  or  by  other  creditors,  in  consequence  of  the 
supposed  payment  by  the  alleged  special  partner  of  his  proportion 
of  the  capital,  and  that  it  is  not  shown  that  loss  or  injury  has  been 
sustained  by  any  one  in  consequence  of  the  failure  to  comply  with 
the  requisitions  of  the  law.  Such  evidence,  from  the  very  nature  of 
the  case,  it  would  be  difficult  to  obtain.  It  was  not  intended  by  the 
provisions  of  the  law  that  any  such  burden  of  proof  should  be  thrown 
upon  the  creditors.  In  the  place  of  an  inquiry  into  any  such  doubt- 
ful and  speculative  questions,  the  statute  substitutes  the  plain, 
unequivocal,  and  explicit  provision,  that  if  a  false  statement  is  made 
in  the  certificate,  all  the  persons  interested  in  the  co-partnership 
shall  be  liable  as  general  partners.  For  the  same  reason,  it  is  un- 
necessary to  show  any  mala  fides  in  making  the  certificates.  Parties 
are  bound  to  know  the  truth,  and  they  cannot  be  permitted  to  say 
that  they  acted  in  good  faith,  in  certifying  to  that  which  was  in  fact 
false. 

It  is  a  mistake  to  suppose  that,  in  adopting  from  the  civil  law 
the  principle  of  a  special  or  limited  co-partnership,  the  legislature 
intended  also  to  ingraft  on  the  stock  of  the  common  law  all  the  rules 
of  construction  which  are  applied  to  such  a  contract  in  those  countries 
where  it  forms  a  part  of  the  regular  system  of  public  laws.  To  have 
done  so  would  have  been  to  make  a  great  inroad  on  the  well  settled 
doctrines  of  the  common  law  applicable  to  partnerships,  especially 
on  that  fundamental  rule  that  he  who  enters  into  a  contract  by  which 
he  is  to  contribute  capital  and  share  in  the  profits  of  the  firm  shall  be 
liable  in  solklo  for  its  debts.  The  intent  of  the  statute  is  to  relax 
this  rule  only  on  certain  conditions  and  within  fixed  and  prescribed 
limitations.  If  these  are  not  fulfilled,  or  are  disregarded,  then  the 
statute  applies  rigorously  the  rule  of  the  common  law,  by  subject- 
ing all  the  members  of  the  firm  indiscriminately  to  the  liabilities  of 
general  partners. 

It  was  suggested  by  the  counsel  for  the  defendants,  that  the  statute 
does  not  require  that  the  money  contributed  by  the  special  partuef 


§  3-]  REQUISITES    TO   THEIB   FORMATION. 


should  be  paid  in  at  the  time  of  making  and  acknowledging  the  cer- 
tificate for  registry,  and  that  it  is  a  sufficient  compliance  with  the 
requirements  of  the  law.  if  it  is  paid  in  afur  the  expiration  of  the 
time  fixed  for  publication  of  the  certificate  in  the  newspaper.  Whether 
this  be  so  or  not  is  quite  immaterial  to  the  decision  in  the  present 
ease,  inasmuch  as  the  capital  which  the  special  partner  was  to  fur- 
nish was  not  paid  in  until  Ion--  after  that  period  of  time  had  el  a]  - 
But  we  are  satisfied  that  the  terms  of  the  statute  do  Dot  support  the 
suggestion.  The  parties  are  required  to  certify  to  that  which  has  been 
done,  not  to  that  whicli  is  executory.  The  payment  of  the  capital  in 
cash  by  the  special  partner  must  precede  the  publication,  otherwise 
it  would  be  impossible  to  make  a  true  certificate.  And  this  payment 
must  be  followed  by  the  required  publication;  otherwise  the  special 
partnership  will  not  be  formed,  hut  the  parties  will  become  general 
partners.  This  construction  can  work  no  hardship,  because  it  is 
easy  for  the  special  partner  to  see  that  all  the  statutory  provisions 
are  complied  with.  Judgnu  nt  for  the  plaintiff. 


METROPOLITAN    NAT.    BANK    v.    SIRRET    it  al. 

97  X.  Y.  320.     1884. 

Andrews,  J.  The  only  questions  before  the  General  Term  were 
questions  of  law  arising  upon  exceptions  taken  by  the  plaintifl  on 
the  trial  before  the  jury.  The  trial  judge  upon  the  application  of  the 
plaintiff's  counsel,  made  after  verdict,  directed  that  the  exceptions  of 
the  plaintiff  should  be  heard  in  the  first  instance  at  General  Term, 
and  that  in  the  meantime  judgment  should  be  suspended.  Upon  a 
motion  for  a  newtrial  upon  exceptions  ordered  to  he  heard  in  the  first 
instance  at  General  Term,  all  controverted  questions  of  fact  are  to 
be  regarded  as  settled  by  the  verdict  of  the  jury,  ami  neither  the 
General  Term,  nor  this  court,  will  consider  the  weighl  of  evidence,  or 
set  aside  the  verdict  on  the  facts,  unless,  indeed,  there  was  such  an 
absence  of  evidence  to  support  a  material  finding,  that  the  courl  can 
determine  as  a  matter  of  law  that  the  fact  found  was  unproved,  in 
which  case  an  exception  by  the  party  against  whom  the  verdict  was 
directed,  to  the  refusal  of  the  court  to  direct  a  verdict  in  his  favor, 
would  be  well  taken. 

Among  the  controverted  questions  of  fact  which  were  settled  bj  the 
verdict    was    that    relating    to    the  day  on  which   the   firm   of   Sirrel  & 

Stafford  deposited  to  their  credit  in  the  Third  National  Bank  of 
Buffalo,  the  check  of  William  B.  Sirrel  for  $40,000,  given  to  the 
firm  for  his  contribution  of  capital  to  the  special  partnership.  If  the 
check  was  deposited  December  28,  L875,  the  day  on  which  the  affi- 
davit of  Stafford,  the  general  partner,  was  made,  and  the  payment 


634  LIMITED    PAETNERSHIPS.  [CHAP    IX. 

was  otherwise  valid  and  effectual,  then  the  partnership,  so  far  as  the 
contribution  of  capital  was  concerned,  was  regularly  constituted. 
The  account  of  William  B.  Sirret  at  the  bank  was  o;ood  for  the 
check.  The  check  was  drawn,  dated,  and  delivered  to  Sirret  & 
Stafford  on  the  28th.  The  only,  controversy  at  the  trial  on  this  branch 
of  the  case  was  whether  the  check  was  actually  deposited  by  Sirret 
&  Stafford  in  the  bank  on  which  it  was  drawn,  and  was  credited  by 
the  bank  to  their  account,  on  the  28th  as  claimed  by  the  defendant,  or 
on  the  29th  as  claimed  by  the  plaintiff.  The  question  was  submitted 
to  the  jury.  The  evidence  did  not  conclusively  establish  either  claim, 
and  whatever  we  may  think  as  to  the  weight  or  preponderance  of  evi- 
dence, the  finding  of  the  jury  is  conclusive. 

The  main  point  of  controversy  on  the  merits  grew  out  of  the  cir- 
cumstances attending  the  transfer  of  the  stock  of  goods  of  William 
B.  Sirret  &  Co.  to  Horace  Stillman  on  the  28th  of  December,  1875, 
for  the  sum  of  $33,164.08,  and  the  purchase  by  Sirret  &  Stafford 
from  Stillman  of  the  same  stock  for  the  same  price  on  the  30th 
December,  two  days  after  the  original  sale.  It  was  claimed  by  the 
plaintiff  on  the  trial,  and  the  claim  is  strenuously  urged  in  this  court, 
that  assuming  that  William  B.  Sirret  delivered  to  Sirret  &  Stafford 
$40,000  in  cash  on  the  28th  of  December,  1875,  as  a  compliance  in 
form  with  the  requirement  of  the  Limited  Partnership  Act  that  the 
contribution  of  the  special  partner  to  the  capital  of  the  limited  part- 
nership "shall  be  paid  in  cash,"  nevertheless  the  alleged  payment  in 
this  case  was  a  mere  pretence  and  was  resorted  to  as  a  cover  or 
device  to  evade  the  statute,  and  that  in  fact  and  law  the  transaction 
proved  was  a  putting  in  by  William  B.  Sirret  of  the  stock  of  the 
previous  firm  of  William  B.  Sirret  &  Co.  as  his  contribution  as 
special  partner  to  the  extent  of  $33,164.08,  to  the  capital  of  Sirret 
&  Stafford.  The  question  was  submitted  by  the  trial  judge  to  the 
jury,  and  in  a  variety  of  forms  he  instructed  them  that  if  the  transac- 
tion disclosed  by  the  evidence  was  a  mere  contrivance  to  evade  the 
statute  and  to  enable  William  B.  Sirret  to  put  in  the  goods  instead 
of  the  cash,  as  capital,  then  the  legal  effect  was  the  same  as  though 
William  B.  Sirret  had  put  in  the  goods  directly,  and  if  so  no  check 
had  been  given.  The  jury  found  for  the  defendant  upon  this  issue 
also,  and  unless  the  uncontroverted  facts  establish  as  matter  of  law 
that  the  transaction  was  an  evasion  and  violation  of  the  statute, 
their  finding  cannot  be  disturbed. 

It  is  well  settled  that  under  the  Limited  Partnership  Act  the  con- 
tribution of  capital  by  the  special  partner  must  be  made  in  cash, 
and  that  payment  in  anything  else  will  not  satisfy  its  requirements. 
Van  Ingen  v.  Whitman,  62  N.  Y.  513;  Durant  v.  Abendroth,  69  Id. 
148.  In  this  case  there  was  a  formal  compliance  with  the  act. 
William  B.  Sirret,  the  special  partner,  as  the  jury  have  found,  did 
pay  to  Sirret  &  Stafford,  on  the  28th  of  December,  $40,000  by  his 
check,   which  represented  money,  and  which  the  firm  converted  into 


§  3.]  REQUISITES   TO   THEIR   FORMATION.  635 

money  before  the  making  of  the  affidavit  by  the  general  partner  on 
that  day.  On  the  30th  of  December,  833,164.08  of  this  money  was 
applied  by  Sirret  &  Stafford  in  the   purchase  from  Stillman  of  the 

stock  of  goods  originally  belonging   to   William    B.    Sirret    &    < 
which  stock  "William  B.  Sirret,  acting  for  William  B.   Sirret  vV   I 
had  sold  to  Stillman  for  the  sain.'  sum.      It  is  undoubtedly  true  that 
it  was  the  expectation  of  William  B.  Sirret,  and  of  the  other  members 
of  the  firm  of  William  B.  Sirret  &  Co.,  before  the  actual  organiza- 
tion of  the  firm  of  Sirret  cV  Stafford,  thai  the  latter  firm,  on  beins 
organized,  would  purchase  the  stock  of  the  former  firm  for  the  use  of 
tho  new  firm,  and  pay  for  the  same  out  of  the  money  which  should  be 
contributed  by  William  B.  Sirret  under  the  limited  partnership  ag 
inent   as   his  capital    in  the  new  firm,   and.    further,    that  the   sale  to 
Stillman,  and  from  Stillman  to  the  new  firm,  was  then  contemplated. 
We  are  of  opinion,  however,  that   the  question  of  intent  and   good 
faith  was  properly  submitted  to  the  jury,  and  that  the  transaction  as 
disclosed  by  the  evidence  could  not  as  a  matter  (if  law  he  adjudged 
a  fraud  upon  the  statute. 

The  jury  must  be  deemed  to  have  found,  as  they  were  justified  in 
finding,  upon  the  evidence,  that  William  B.  Sirret,  in  organizing  the 
limited  partnership  firm,  was  actuated  by  honest  and  justifiable 
motives,  and  that  it  was  not  organized  to  escape  his  liability  as  part- 
ner in  the  firm  of  William  B.  Sirret  &  Co.,  by  saddling  the  debts  of 
that  concern  upon  the  new  firm.  In  organizing  the  new  firm,  which 
was  to  conduct  the  same  business  as  the  former  one,  William  B, 
Sirret  was  necessarily  confronted  by  the  question  of  the  disposition 
to  be  made  of  the  stock  of  the  linn  of  William  B.  Sirret  &  Co..  of 
which,  practically,  he  was  the  sole  owner.  The  jury  have  found  that 
the  stock  was  needed  by  the  new  firm  in  its  business,  and  that  the 
price  paid  was  fair  and  reasonable.  There  is  nothing  in  the  Limited 
Partnership  Act  which  prohibits  a  limited  partnership  from  dealing 
with  or  buying  goods  for  its  business  from  the  special  partner. 
Transactions  between  the  firm  and  the  special  partner  may  be  fraudu- 
lent in  fact  as  to  the  creditors  of  the  linn.  Bui  there  is  no  disability 
to  engage  in  such  dealings  imposed  by  the  terms  of  the  act,  nor  are 
such  dealings,  fairly  conducted,  inconsistent  with  the  purposes  or 
objects  of  a  limited  partnership.  That  such  a  dealing  is  permitted 
has  been  decided  by  the  Supreme  Court  of  Pennsylvania,  under  a 
statute  almost  identical  with  our  own,  and  the  same  principle  is 
recognized  in  the  French  law,  from  which  the  principle  of  partner- 
ship is  derived.  McKnight  v.  Ratcliff,  ll  Pa.  St.  156;  Troubat 
on  Lim.  Partn.  $  307. 

It  is  easy  to  conceive  of  cases  where  the  acquisition  by  the  linn  of 
a  property  right  or  interest  belonging  to  the  special  partner  mighl  be 
in  the  highest  degree  to  t  he  advantage  of  the  firm,  or  rVeii  essential 
to  the  successful  prosecution  of  its  business.  There  wo,,ld  therefore 
have  been  no  legal  objection  to  a  purchase  by  Sirret  &  Stafford  from 


636  LIMITED    PARTNERSHIPS.  [CHAP.  IX 

William  B.  Sirret  of  his  stock  of  goods,  if  it  had  not  been  preceded  by 
an  expectation  or  understanding,  existing  when  the  firm  was  organized, 
that  such  purchase  would  be  made.  It  may  be  that  if,  antecedent 
to  the  payment  of  the  $40,000  by  William  B.  Sirret  to  Sirret  & 
Stafford,  there  was  an  agreement  by  which  Sirret  &  Stafford  had  obli- 
gated themselves  to  purchase  this  stock  of  goods,  and  pay  for  it  out 
of  the  fund  contributed  by  William  B.  Sirret,  the  payment  could  not 
be  upheld  as  a  payment  by  the  special  partner  of  his  capital,  in  good 
faith  in  cash,  under  the  statute.  It  would  be  a  payment  connected 
with  an  antecedent  agreement  restricting  the  liberty  of  the  general 
partners  in  the  use  of  the  money,  and  practically  appropriating  it  in 
advance.  But  the  evidence  fails  to  establish  that  there  was  any 
agreement  binding  upon  Sirret  &  Stafford  to  purchase  the  stock,  or 
which  deprived  the  firm  of  the  legal  liberty  to  disregard  and  repudi- 
ate any  prior  understanding  with  reference  to  the  purchase,  or  which 
prevented  it  from  using  the  money  received  from  William  B.  Sirret 
in  the  firm  business  in  any  manner  it  should  see  fit.  It  is  true  Sirret 
&  Stafford  met  the  expectation  of  the  parties  and  bought  the  stock, 
and  thereby  William  B.  Sirret  was  enabled  to  receive  $33,164.08  of 
the  money  paid  into  the  firm.  He  did  not  receive  it,  however,  as  a 
return  of  his  capital  paid  in.  The  transaction  on  his  part  was  not 
in  form  or  in  legal  effect  the  same  as  though  he  had  put  in  the  goods 
as  part  of  his  capital,  instead  -of  the  money.  The  money  when  paid 
was  beyond  his  control,  and  placed  in  the  legal  possession  of  the 
general  partners,  and  was  subject  to  any  disposition  they  might  make 
of  it.  The  purchase,  in  effect,  was  a  transaction  of  the  firm  after  the 
firm  had  been  organized,  and  not  the  consummation  of  a  prior  con- 
tract, or  at  least  the  jury  were  at  liberty  so  to  find. 

There  is  nothing  in  the  letter  of  the  Limited  Partnership  Act  to 
prevent  the  change  of  an  existing  general  partnership  into  a  limited 
one.  The  practical  convenience  of  such  a  proceeding,  in  many  cases, 
is  manifest.  It  enables  a  general  partner  who,  by  reason  of  age  or 
infirmity,  or  upon  any  other  ground,  desires  to  withdraw  from  the 
active  management  of  the  business,  to  place  it  in  the  hands  of  his 
co-partners,  risking  only  his  capital,  and  at  the  same  time  securing 
to  the  new  concern  the  good-will  and  business  advantages  possessed 
by  the  former  one.  The  practical  arrangements  by  which  such  a 
change  is  effected  usually  include  the  taking  by  the  limited  partner- 
ship of  the  assets  of  the  general  partnership.  The  special  partner 
cannot  put  in  his  stock  in  the  old  concern  upon  a  valuation,  as  his 
capital,  because  the  statute  requires  it  to  be  paid  in  in  cash.  But  the 
statute  does  not  prohibit  the  limited  partnership  from  purchasing  in 
good  faith  of  the  former  firm,  or  from  paying  for  it  out  of  the  capital 
contributed  by  the  special  partner,  although  it  may  happen  that  the 
latter  is  enabled  to  receive  the  greater  part,  or  the  whole  of  the  pur- 
chase money,  and  is  placed  in  substantially  the  same  position  as  if 
he  had  originally  put  in  the  stock  as  capital  instead  of  money.     The 


S  3.]  REQUISITES   TO   THEIR   FORMATION.  I     7 

transaction  is  not  a  withdrawing  o\'  the  capital  of  the  Etpecial  part- 
ner. It  is  the  employment  of  that  capital  in  the  business  of  the 
limited  partnership.  If  the  purchase  of  the  Btock  w:is  made  a  condi- 
tion of  his  contribution  of  capital,  a  different  question  would  be  | 
sented.  But  where  a  limited  partnership  is  at  liberty  to  purchase  the 
stock,  or  to  use  the  fund  for  any  other  partnership  purpose,  had  faith 
in  constituting  the  partnership  is  not  a  legal  inference  front]  Buch  a 
transaction,  and  this,  although  the  expectation  that  the  new  firm 
would  make  the  purchase  existed  when  the  partnership  was  formed. 
The  case  of  Lawrence  v.  Merrifield,  decided  in  the  Ne^  1  ork  Superior 
Court,  and  reported  in  10  Jones  &  Spencer,  36,  and  affirmed  in  this 
court,  73  N.  Y.  590,  tends  to  support  the  conclusion  we  have  reached 
upon  this  branch  of  the  case. 

The  exception  to  the  denial  of  the  plaintiff's  motion  to  compel  the 
defendant,  William  B.  Sirret,  to  produce  the  books  kept   by  him  as 
county  treasurer,  is  not   available   for  the   reason  that    it   is  wholly 
immaterial  to  the  issue  whether    the   money   loaned    by  William  B. 
Sirret  to   Stillman    to  pay  for  the  stock  of  goods  was  or  was  not 
advanced  out  of  the  funds  received  by   Sirret   as  county  treasurer. 
The  county  of  Erie  makes  no  complaint  of  the  misuse  of   its   fund-. 
The  pecuniary  responsibility   and   solvency  of  "William   B.  Sirret  at 
the  time  of  this  transaction  was  assumed  on   the  trial.      The  loan  was 
made  by  means  of  a  check  upon  his  general   account,  and   if   that 
account  was   made   up  of   county   funds,  it    was   made   good   for   the 
amount  withdrawn  on  the  28th  of   December,  by  a   deposit  of   the 
same  amount  to  the  credit  of  the  account  on  the  30th  of  the  same 
month.     Whether  William  B.  Sirret  borrowed  the  money  to  loan  to 
Stillman  from  a  friend,  or  took  it  temporarily  from  the  funds  of  the 
county,  was  not,  we  think,  a  material  circumstance  bearing  upon  the 
question  whether  the  840,000  paid  to  Sirret  &  Stafford   was   in  fact 
paid,  or  was  paid  in  good  faith. 

The  plaintiff's  counsel  at  the  conclusion  of  the  evidence  moved  the 
court  to  direct  a  verdict  for  the  plaintiff  on  several  grounds  not 
involved  in  the  foregoing  discussion. 

First.  The  objection  that  the  provision  in  the  certificate  filed  on 
the  28th  of  December,  1875,  permitting  the  special  partner  to  draw 
the  interest  on  his  capital  monthly,  was  a  violation  of  the  provision 
in  the  fifteenth  section  of  the  Limited  Partnership  Act.  which  per- 
mits the  special  partner -annually  to  receive  lawful  interest  on  his 
capital,  under  the  circumstances  stated  in  that  section,  is  not.  we 
think,  well  taken.  The  stipulation  in  the  partnership  articles,  which 
were  filed  as  the  certificate,  for  periodical  payment-  ql  a  proportion- 
ate part  of  the  annual  interest,  fairly  construed,  relates  to  the  mtevesl 
earned  at  the  time  such  payments  are  provided  to  he  made,  and  IS 
not  a  violation  of  the  statute.      The  word  "annually"  ...  the  t.tiecn.h 

section  has,  we  think,  the  same  meaning  as  "per  annui ■     by  the 

year,"  and,  like  the  statut !  usury,  this  section  is  not  violated  by  i 


638  LIMITED    PARTNERSHIPS.  [CHAP.  TX. 

provision  that  the  annual  interest  may  be  paid  quarter  yearly,  or  at 
any  other  stated  periods  less  than  a  year. 

Second.  The  provision  in  the  partnership  articles  that  the  special 
partner  should  bear  a  proportion  of  the  losses  was  in  the  interest  of 
creditors,  and  there  is  nothing  in  the  act  prohibiting  the  special  part- 
ner from  extending  his  liability  by  agreement  with  the  general  part- 
ners, or  assuming  risks  beyond  the  loss  of  his  capital. 

Third.  The  certificate  filed  on  the  renewal  of  the  partnership, 
December  5,  1877,  stated  all  the  facts  required  to  be  stated  by  the 
fourth  section  of  the  act.  The  notice  published  was  a  copy  of  this 
certificate.  The  ninth  section  requiring  publication  of  the  terms  of 
the  partnership  is  satisfied,  we  think,  by  a  publication  of  the  certifi- 
cate, and  an  omission  to  state  in  the  published  notice  all  the  details 
of  the  partnership  agreement,  is  not  a  failure  to  comply  with  the  pro- 
vision as  to  publication,  so  long  as  the  notice  contains  all  the  facts 
required  by  the  fourth  section.     Troubat  on  Lim.  Partn.  §  84. 

Fourth.  The  change  in  the  name  of  "  The  Buffalo  Daily  Dispatch 
and  Evening  Post,"  one  of  the  newspapers  in  which  the  notice  was 
directed  to  be  published,  to  that  of  "  The  Buffalo  Evening  Post," 
made  after  the  publication  was  commenced,  did  not,  we  think,  affect 
the  validity  of  the  publication.  The  identity  of  the  paper  was  not 
lost  by  a  change  of  name  merely,  and  the  purpose  of  the  statute  was 
accomplished  by  continuing  the  publication  in  that  paper  under  the 
changed  name. 

Fifth.  The  court  would  not  have  been  authorized  to  direct  a  ver- 
dict on  the  ground  that  when  the  certificate  and  affidavit  for  the 
renewal  of  the  partnership  were  made  and  filed,  the  capital  of  William 
B.  Sirret,  the  special  partner,  had  been  impaired.  There  was  not 
only  no  conclusive  evidence  of  the  fact,  but  we  are  unable  to  find 
any  evidence  which  affords  ground  for  anything  more  than  a  con- 
jecture that  such  a  fact  existed.  But,  however  this  may  be,  the 
question  could  not  be  ruled  as  one  of  law. 

We  are  of  opinion  that  no  legal  error  was  committed  on  the  trial, 
and  that  the  order  of  the  General  Term,  granting  a  new  trial,  should 
be  reversed,  and  the  judgment  rendered  for  the  defendant  on  the 
verdict. 

All  concur.  Order  reversed,  and  judgment  accordingly. 


FIRST  NAT.  B'K.  OF  DANVILLE  v.  CREVELING  et  al. 

117  Pa.  St.  267  :    35  At.  595.     1896. 

Sterrett,  C.  J.  In  this  case  it  was  successfully  contended  by  plain- 
tiff bank  that  defendants  were  liable  as  general  partners  because  of 
their  failure  to  comphT  with  some  of  the  provisions  of  the  act  of  June, 


§  3.]  REQUISITES   TO   THEIR   FORMATION. 

1874,  and  its  supplements,  under  which,  in  March.  1880.  they  under- 
took to  organize  themselves  into  a  partnership  association  limited  ;  and 
judgment  was  accordingly  entered  against  them.  In  October,  1879,  the 
three  defendants  above  named  formed  a  general  co-partnership,  in  the 
name  of  Creveling,  Miles.  &  I  o.,  and  soon  thereafter  they  purchased, 
credit,  the  property  known  as  the  «•  Chulaski  Furnace."  Far  the  entire 
consideration  ($20,000)  a  purchase-money  mortgage  was  given,  payable 
in  quarterly  instalments  of  $l,250each.  The  first  instalment  was  paid, 
but  before  the  second  became  due,  the  partners  undertook  to  cha 
their  general  partnership  into  a  partnership  association  limil 
under  the  act  aforesaid.  In  their  recorded  articles  of  association,  i 
they  certified  that  the  amount  of  the  capital  of  said  partnership  asso- 
ciation, limited,  was  $99,000,  consisting  of,  first,  real  estate  described 
in  schedule  annexed  thereto,  etc.,  at  a  valuation  of  $75,000  fixed  upon 
it,  and  approved  by  all  the  members  subscribing  to  the  capital  of  the 
association.  The  schedule  thus  referred  to  as  attached  to  and  made 
part  of  the  articles  of  association  contains  the  following  description  of 
the  real  estate  mentioned  and  referred  to  as  forming  part  of  the  fore- 
going certificate  and  statement  of  Creveling,  Miles,  &  Co..  Limited, 
contributed  to  the  capital  stock  thereof  at  a  valuation  of  $75,000,  in 
equal  proportions,  by  the  members  thereof,  to  wit :  "All  that  certain 
tract  of  land  and  furnace  thereon  erected,  situate  in  Point  township, 
Northumberland  County,  Pennsylvania,  containing  one  hundred  and 
fifty-four  acres  and  one  hundred  and  forty-two  perches,  strict  measure. 
To  this  is  appended  the  certificate  of  the  defendants,  Creveling,  Levis, 
and  Miles,  in  which  the)*"  certif}'  and  declare  that  the  foregoing  sched- 
ule is  a  true  and  correct  description  of  the  real  estate  contributed  by 
us  to  the  association  of  Creveling,  Miles,  &  Co.,  Limited,  at  a  valua- 
tion of  $75,000,  approved  by  us  who  are  all  the  members  subscribing 
to  the  capital  of  said  association."  Not  a  word  is  said  as  to  the  pur- 
chase-money mortgage  incumbrance  of  $20,000,  on  which  only  $1,250 
had  been  paid.  It  requires  neither  argument  nor  citation  of  authority 
to  show  that  there  was  a  manifest  failure  to  comply  with  the  provisions 
of  the  act  in  this  regard.  The  statement  not  only  fails  to  furnish  any 
notice  to  creditors  of  the  existence  of  the  mortgage  lien,  but  it  is  pos- 
itively  misleading,  in  that  it  does  not  certify  the  character  of  the  prop- 
erty "  according  to  the  fact." 

Those  who  seek  to  have  all  the  advantages  of  a  general  partnership, 
and  yet  limit  their  liability  to  creditors,  as  contemplated  by  the  act, 
must  comply  with  all  its  provisions ;  otherwise,  they  will  be  liable  as 
general  partners.  The  object  in  requiring  a  schedule  of  property  con- 
tributed in  lieu  of  cash  was  to  enable  creditors  to  ascertain  precisely 
of  what  the  property  consisted,  and  to  judge  of  its  value.  Maloney 
v.  Bruce,  94  Pa.  St.  249  ;  Vanhorn  v.  Corcoran,  127  Pa.  St.  255  [Gear- 
ing v.  Carroll,  151  Pa.  St,  79;  Haslet  w.  Kent.  L60  Pa.  St.  85.  The 
contributed  real  estate,  as  correctly  stated  by  the  learned  referee,  "  was 
in  effect  an  equity  of  redemption  in  the  Chulaski  Furnace  property. 


640  LIMITED    PARTNERSHIPS.  [CHAP.  IX. 

which  might  have  been  set  forth  and  described  in  any  one  of  several 
forms.  The  mere  description  of  the  real  estate  was  accurate  enough 
if  the  statement  had  also  been  made  that  it  was  subject  to  a  purchase- 
money  mortgage  of  $20,000,  of  which  $1,250  had  been  paid.  The 
failure  to  do  this  leaves  even  the  valuation  doubtful,  for  it  may  be  thought, 
on  the  one  hand,  that  the  whole  property  is  worth  $75,000,  considered 
clear  of  incumbrances,  or,  on  the  other  hand,  that  the  equity  of  re- 
demption is  worth  $75,000.  If  the  valuation  of  the  whole  property 
were  $75,000,  the  effect  of  it,  in  this  case,  would  be  to  render  the  whole 
statement  false,  because,  as  the  $75,000  would  be  subject  to  a  deduction 
of  $18,750,  it  would  follow  that  the  net  value  of  the  property  as  put 
into  the  association  was  but  $56,250  ;  and,  as  the  additional  capital 
subscribed  was  but  $24,000,  the  whole  capital  would  be  $80,250,  in- 
stead of  $99,000,  as  set  forth  in  the  articles."  For  those  and  other 
reasons,  the  learned  referee  rightly  concluded  that  the  certificate  is 
ineffective  to  create  a  valid  partnership  association,  limited,  under  the 
act.  He  and  the  court  below  were  also  right  in  holding  that  the  defend- 
ant also  failed  in  other  respects  to  comply  with  the  requirements  of  the 
act  in  question.  We  find  nothing  in  the  record  that  would  justify  us 
in  sustaining  any  of  the  specifications  of  error,  nor  do  we  think  that 
either  of  the  questions  therein  presented  requires  further  notice. 

Judgment  affirmed, 


WHITE  et  al.   v.   EISEMAN  et  al. 

134  N.  Y.  101.     1892. 

Vann,  J.  The  primary  object  of  the  act  authorizing  limited  partner- 
ships was  to  encourage  those  having  capital  to  become  partners  with 
those  having  skill,  by  limiting  the  liability  of  the  former  to  the  amount 
actually  contributed  to  the  firm.  The  next  and  incidental  object  was 
to  furnish  reasonable  protection  to  those  dealing  with  the  concern  by 
requiring  acts  to  be  done  and  public  notice  thereof  given,  so  that  all 
who  desired  might  know  the  essential  features  of  the  arrangement.  In 
order  to  prevent  evasion  and  fraud,  it  was  provided  that  an}'  false 
statement  in  the  certificate  or  affidavit  should  render  all  the  partners 
equally  liable.  That  provision,  however,  was  not  designed  as  a  trap  to 
catch  the  innocent  and  unwary,  but  as  a  bar  to  shut  out  the  dishonest 
and  fraudulent.  While  the  courts  were  at  first  inclined  to  a  strict 
construction  against  those  thus  seeking  exemption  from  the  common- 
law  liability  of  partners,  the  tendency  in  this  State  is  now  toward  a 
liberal  construction,  so  as  to  accomplish  the  wise  purpose  of  the  act  by 
uniting  capital  and  labor  in  business  enterprises,  without  excessive 
hazard  to  the  former.  President,  etc.,  Manhattan  Co.  v.  Laimbeer, 
108  N.  Y.  578,  582  ;  Fifth  Avenue  Bank  v.  Colgate,  120  Id.  381,  396  ; 
Metropolitan  National  Bank  v.  Palmer,  30  N.  Y.  S.  R.  509  ;  Lev}*  v. 


§3.]  REQUISITES    TO    THEIB    FORMATION.  641 

Lock,  47  How.  Pr.  394;  Lawrence  o.  Merrifield,  10  J.  &  S 

73  N.  Y.  590;  Elopes  w.  Colgate,  17  Abb.  N.  C.  136;  13  Am.  ,v  1 

Cyc.  of  Law,  807. 

The  more  recent  cases  regard  the  statute  as  remedial  in  nature,  and, 
looking  to  substance  rather  than  form,  protect  those  who,  in  good  faith 
substantially  comply  with  the  essential  requirements.  We  now  liave 
a  case  before  us  where  nothing  of  substance  was  omitted.  The  defect 
complained  of  neither  misled  nor  injured  the  creditors  who  BCek  to  take 
advantage  of  it.  Payment  having  been  made  in  the  usual  wa\  prac- 
tised by  business  men,  who  regard  a  check  for  adequate  funds  behind 
it  as  cash,  an  affidavit  was  made  accordingly,  and  the  good  faith  of  the 
affiant  is  questioned  by  no  one.  There  was  no  intentional  violation  of 
the  statute,  and  the  failure  in  literal  compliance  consisted  of  the  fact 
that  the  affidavit  was  not  technically  true  when  made,  although  both 
affidavit  and  certificate  were  true  when  filed.  The  exact  question, 
therefore,  presented  for  decision  is  whether  there  is  substantial  compli- 
ance, if  the  affidavit  and  certificate  are  true  when,  for  the  first  time, 
use  is  made  of  them  for  a  purpose  contemplated  by  the  statute? 

In  support  of  the  plaintiff's  theory,  we  are  referred  to  the  case  of 
Durant  v.  Abendroth,  G9  N.  Y.  148.  where  it  was  said,  in  behalf  of  the 
four  judges  whose  votes  were  effective,  that  the  certificate  and  affidavit 
speak  as  of  the  day  of  their  date.  p.  152.  This,  however,  was  not 
essential  to  the  decision,  nor  was  it  regarded  as  controlling,  for  in  the 
third  sentence  following  it  is  said  that  good  faith  would  lie  of  no  avail 
"  if  the  payment  had  not  been  actually  made  in  cash  when  the  certifi- 
cate and  affidavit  were  made  and  filed.'*  As  that  affidavit  was  filed  on 
the  dav  it  was  made,  it  spoke  from  the  common  date  of  making  and 
filing,  and  the  remark  of  the  court  relied  upon  by  the  plaintiffs  is  with- 
out special  significance.  In  that  case,  the  only  payment  made  was  by 
an  uncertified  check  dated  eight  days  after  the  certificate  and  affidavit 
were  filed,  and  it  was  not  paid  until  the  tenth  day  thereafter,  yet  this 
court  has  pronounced  it  "  a  very  stern  and  technical  application  of  the 
statute"  to  hold  the  special  partner  liable,  even  under  those  circum- 
stances, and  has  declared  that  the  principle  should  not  he  extended. 
President,  etc.,  v.  Laimbecr,  s>i]>r<t,  589. 

According  to  the  statute,  the  partnership  is  not  formed  until  the 
certificate  has  been  recorded  and  the  affidavit  filed.  1  R.  S.  8th  ed. 
p.  2493,  §  8.  The  organization  of  the  firm  is  completed  by  the  filing 
of  these  papers,  for  the  omission  of  the  clerk  to  record  was  held  in  the 
case  last  cited  not  to  affect  the  liability  of  the  special  partner.  The 
date  of  this  culminating  act,  therefore,  is  of  the  highest  consequence, 
because  it  is  the  time  when  the  firm  becomes  read}  for  business,  and 
when  the  safeguards  should  exist  that  are  designed  to  protect  third 
parties.  As  was  well  said  in  a  recent  case:  "  It  is  the  ad  of  filing 
the  certificate  and  affidavit  which  gives  life  to  the  partnership  ami  con 
fers  immunity  for  the  debts  <>f  the  firm  upon  the  Bpecial  partner,  and 
from  that  moment  those  who  ileal  with  the  partnership  become  entitled 

•II 


642  LIMITED    PARTNERSHIPS.  [CHAP.  IX. 

to  know  the  truth  as  to  its  formation,  and  from  and  after  that  time  a 
wron<*  is  done  to  those  who  deal  with  it,  if  a  false  statement  is  pub- 
lished through  the  filing  of  the  certificate.  The  truth  of  the  statements 
contained  in  the  certificate  is  to  be  determined,  therefore,  at  the  time 
of  its  being  filed  with  the  county  clerk.  If  true  at  the  instant  of  filing, 
there  is  no  liability,  because,  being  true  at  the  instant  of  the  creation 
of  the  limited  partnership,  they  fulfil  the  purpose  for  which  the  law 
was  enacted."  Ropes  v.  Colgate,  supra,  143.  We  adopt  this  lan- 
guage as  applicable  to  the  case  in  hand,  and  extend  it,  in  view  of  the 
circumstances  already  stated,  to  the  affidavit  filed  with  the  certificate. 
In  reaching  this  conclusion,  we  are  guided  by  the  object  of  the  legisla- 
ture in  passing  the  statute,  which  should  not  be  defeated  by  exalting 
the  letter  and  subverting  the  spirit.  The  formation  of  limited  partner- 
ships should  not  be  made  difficult  or  dangerous  by  technical  construc- 
tion. If  every  statement  contained  in  the  papers  required  to  be  filed 
is  true  at  the  time  of  filing,  nothing  further  is  necessary  for  the  pro- 
tection of  creditors,  who  are  thus  given  all  the  information  that  it  was 
the  policy  of  the  statute  to  furnish.  More  than  this  should  not  be 
exacted  in  the  absence  of  an  actual  intent  to  deceive.  As  the  special 
partner  cannot  make  the  affidavit  himself,  §  7,  he  should  be  protected 
if  it  is  true  when  filed,  as  that  is  the  first  use  that  is  made  of  it,  and 
the  occasion  when  he  is  first  charged  with  the  duty  of  examining  it. 
It  is  then  that  it  becomes  material,  and  then  that  it  must  be  true,  at  the 
peril  of  general  liability  if  it  is  untrue.  If  upon  then  examining  it 
he  finds  its  contents  were  true,  it  would  be  a  harsh  and  unreasonable 
rule  to  require  him  to  ascertain,  if  he  could,  the  precise  date  when  the 
check  was  cashed  or  certified,  and,  comparing  it  with  the  date  of  the 
jurat,  to  decide,  at  the  peril  of  losing  all  he  had,  which  date  preceded 
the  other.  The  affidavit  is  simply  evidence  of  the  facts  therein  stated, 
and  if  those  facts  are  true  when  such  evidence  is  first  used,  the  statute 
is  satisfied,  unless  some  furtive  purpose  existed  when  the  verification 
was  made.  If  any  business  had  been  done  between  the  making  and 
filing,  or  if  it  had  been  a  mere  artifice  to  evade  the  statute,  or  if  any 
creditor  had  been  misled  by  the  technical  inaccuracy  of  statement, 
when  viewed  from  the  date  of  the  jurat,  a  different  question  would 
have  been  presented  from  that  now  before  us. 

Our  reasons  for  holding  that  the  affidavit  was  true  when  filed  may  be 
stated  in  a  few  words.  The  check  was  delivered  to  the  general  part- 
ners on  the  third,  certified  on  the  fourth,  deposited  to  the  credit  of  the 
firm  on  the  fifth,  before  the  papers  were  filed,  but  was  not  paid  to  the 
bank  where  it  was  deposited  until  the  sixth.  (The  certificate  and 
affidavit  were  made  on  the  third.  —  Ed.) 

The  general  rule  relating  to  the  payment  of  capital  by  the  special 
partner,  as  stated  by  Mr.  Bates  in  his  work  on  Limited  Partnerships, 
§  45,  is  that  'k  The  fund  must  be  in  existence  in  money  and  in  the  sole 
control  of  the  general  partner  on  the  day  the  partnership  is  formed, 
free  from  all  contingencies  except  those  arising  from  the  proper  busi- 


§  3.]  REQUISITES    TO    THEIR    FORMATION.  G-io 

ness  of  the  concern."  This  is  in  substantial  accord  with  the  authori- 
ties, which  hold  that  payment  in  «  or  even  government 
bonds,  worth  more  than  par.  is  insufficient.  Van  Igen  v.  Whitman, 
62  N.  Y.  513;  Haviland  u.  Chace,  39  Barb.  288;  Haggertv  v.  Foster, 

103  Mass.  17. 
In  Durant  r.  Abendroth,  supra,  the  certificate  and  affidavit  w< 

filed  December  twenty-third,  on  which  day  post-dated  cluck-,  payable 
December  thirty-first,  were  given  by  the  special  to  the  general  part- 
ner, but  they  were  not  paid  until  the  second  of  the  following  month, 
and  it  was  held  that  this  was  not  a  payment  in  cash.  The  court.  1.  - 
ever,  said:  "  If  the  special  partner  had  paid  the  money  to  the  bank  to 
the  credit  of  the  general  partners,  or  deposited  it  with  any  third  party 
for  the  express  purpose  of  being  paid  to  the  firm  at  the  commence- 
ment of  the  partnership,  and  had  appropriated  it  to  that  purpose  in 
such  a  manner  as  to  part  with  all  control  over  it.  there  would  be  much 
force  in  the  argument  that  this  was  a  payment  of  his  contribution  of 
capital."  Page  153.  In  the  Metropolitan  Nat.  Bank  v.  Sirret,  '.'7  N.  V. 
320,  the  usual  papers  were  filed  with  the  county  clerk,  a  check  drawn, 
dated,  and  delivered  bj*  the  special  partner  to  the  general  partners,  and 
the  check  deposited  by  them  in  the  bank,  on  which  it  was  drawn  to  the 
credit  of  the  firm,  all  on  the  same  day.  Xo  money  was  actually  paid, 
but  as  there  was  a  transfer  of  credit  by  the  bank  from  the  special 
partner  to  the  partnership,  it  was  held  sufficient.  In  the  Metropolitan 
Bank  v.  Palmer,  30  N.  Y.  S.  R.  509,  the  delivery  of  a  certified  check 
was  held  a  valid  payment  within  the  meaning  of  the  act,  because  "  The 
capital  was  as  completely  subjected  to  the  control  and  disposition  of 
the  firm  as  though  the  money  were  drawn  upon  it  and  it  was  in  form 
paid  over  in  cash."  See  also  Lineweaver  v.  Slagle,  ('» 1  Md.  465,  and 
Siebert  v.  Bakewell,  87  Pa.  St.  506. 

We  think  that  where  the  money  is  actually  in  the  bank  to  the  credit 
of  the  special  partner,  and  he  gives  absolute  and  final  control  of  it  to 
the  general  partner,  it  should  be  regarded  as  a  payment  in  cash.  The 
delivery  of  a  certified  check  to  the  payee  has  this  effect.  Clewea  V. 
Bank  of  New  York,  etc.,  89  X.  Y.  418;  Mead-  v.  Merchants'  Hank  of 
Albany,  25  Id.  143 ;  Farmers'  and  Mechanics'  Bank  v.  Butchers' and 
Drovers'  Bank,  16  N.  Y.  125. 

While  the  check  in  question  was  delivered  by  the  special  partner  on 
the  third  without  certification,  it  was  presented  to  the  bank  by  the 
general  partner  on  the  fourth,  and  certified  while  in  his  hands.  In 
other  words,  when  it  was  in  his  power  to  obtain  cash  on  the  clunk,  he 
procured  it  to  be  certified  instead  of  paid,  which,  as  Let  ween  the  firm 
and  the  special  partner,  was  a  payment,  and  discharged  the  latter  from 
liability  on  the  check.  First  National  Bank  of  Jersey  Citj  v.  Leach, 
52  X.  Y.  350.  On  the  same  day  the  hank  charged  the  amount  of  the 
check  to  the  special  partners  on  their  hank  hook,  and  deducted  it  from 
the  balance  to  their  credit  Thus  the  special  partners  losl  control  of 
the  money,  the  general  partner-  obtained  control  of  it,  and  there  was 


044  LIMITED    PARTNERSHIPS.  [CHAP.  IX. 

an  absolute,  final,  and  irrevocable  appropriation  of  it  to  the  use  of  the 
firm  on  the  fourth,  or  the  day  before  the  certificate  and  affidavit  were 
filed. 

We  think  that  the  exception  taken  by  the  defendants  requires  a  new 
trial. 

The  judgment  should  be  reversed  and  a  new  trial  granted,  without 
costs  to  abide  event.     All  concur. 

Judgment  reversed. 


MYERS   v.   EDISON    GENERAL   ELECTRIC   CO. 
59  N.  J.  L.  153:  35  At.  1070.     1896. 

McGill,  Ch.  This  action  is  for  the  recovery  of  an  indebtedness  for 
rent,  due  to  the  defendant  in  error  from  the  firm  of  Poggi  &  Co., 
composed  of  William  E.  Poggi,  Edith  A.  Poggi,  and  Charles  R.  Myei-s, 
doing  business  in  the  citj-  of  New  York.  Charles  R.  Myers  defends, 
upon  the  ground  that  he  was  a  special  partner  in  the  firm,  and  that, 
because  thereof,  his  liability  for  the  debts  of  the  firm  is  limited  to  the 
$5,000,  which  he  contributed  to  the  capital,  no  part  of  which  was  with- 
drawn. The  partnership  was  formed  under  the  statute  of  the  State  of 
New  York  relating  to  limited  partnerships,  which,  among  other  things, 
provides  that,  when  the  certificate  of  such  a  partnership  required  1)}' 
the  statute  shall  be  filed,  an  affidavit  b}r  one  or  more  of  the  general 
partners  shall  also  be  filed  in  the  same  office,  "  stating  the  sums 
specified  in  the  certificate  to  have  been  contributed  b}'  each  of  the 
special  partners  to  the  common  stock,  have  been  actually  and  in  good 
faith  paid  in  cash,"  and  also  that,  "  If  an}'  false  statement  be  made  in 
such  .  .  .  affidavit,  all  the  persons  interested  in  such  partnership  shall 
be  liable  for  all  the  engagements  thereof  as  general  partners."  1  Rev. 
St.  N.  Y.  p.  765,  §  8. 

The  case  was  tried  before  the  circuit  judge  in  Essex  Count}',  a  jury 
having  been  waived,  who  found,  as  facts,  that  the  partnership  com- 
menced on  the  5th  of  January,  1892  ;  and  that  on  that  day,  in  pursu- 
ance of  the  requirement  of  the  statute,  a  certificate  that  Charles  R. 
Myers  had  contributed  the  sum  of  $5,000  as  capital  to  the  common 
stock  of  the  partnership,  together  with  an  affidavit  made  by  William 
E.  Poggi,  that  "  The  sum  of  five  thousand  dollars,  the  capital  to  be 
contributed  to  said  firm  by  the  special  partner,  Charles  R.  Myers,  has 
been  actually  and  in  good  faith  paid  in  in  cash,"  were  duly  filed  ;  and, 
also,  that  the  mpne}*  so  sworn  to  have  been  actually  paid  on  or  prior 
to  the  5th  of  January,  1892,  was  not  actually  paid  until  the  12th  of 
January  in  that  year.  The  latter  finding  is,  in  effect,  that  the  affidavit 
was  false,  within  the  meaning  of  the  statute,  in  the  particular  that  at 
its  date  the  $5,000  was  actually  paid.  This  finding  of  the  judge  ap- 
pears to  have  been  upon  conflicting  evidence,  which  would  admit  of 


§  3.]  REQUISITES   TO   THEIR    FORMATION. 


641 


his  conclusion,  and  therefore  not  to  be  subject  to  review  upon  error. 
Doolittle  v.  YVillet,  57  X.  J.  Law.  398.  We  deem  the  Ending  of  the 
fact  stated  to  be  decisive  of  this  case.  Because  of  the  false  statement 
in  the  affidavit,  the  statute,  as  has  been  seen,  expressly  makes  the 
defendant.  Myers,  liable  for  all  the  engagements  of  the  partnership. 

^  In  Durant  o.  Abendroth,  69  N.  Y.  148,  the  Court  of  Appeals  in  the 
State  of  New  York  dealt  with  a  ease  in   which   the  partnership  was 
entered  into  on  the  23d  of  December.  1870,  on  which  day  affidavit  was 
duly  made  that  the  money  specified  in  the  certificate  of  partnership  to 
have  been  contributed  by  the  special   partner  "  has  been  actually  and 
in  good  faith  paid  in  cash,"  when  the  fact  was  that  on  that  day  the 
special  partner  gave  his  check,  dated  December  31,  1870,  which  was 
paid  on  the  2d  of  January,  1871.     Upon  this  state  of  facts,  the  court 
held  that  the  affidavit  was  false,  within  the  meaning  of  the  statute,  and 
that  the  intended  special  partner  was  liable  as  general  partner  for  the 
debts  of  the  firm.     Judge  Rapallo,  who  delivered  the  (.pinion  of  the 
court,  said:  "The  statute  peremptorily  requires  an  affidavit  that  the 
capital  has  been  actually  paid  in  cash,  and  withholds  its  protection 
from  the  special  partner  if  the  affidavit  be  not  true.     The   object  of 
this  provision  is  to  secure  certainty,  and  to  prevent  equivocal  transac- 
tions in  the  formation  of  these  partnerships.     Nothing  but  cash  sat- 
isfies its  requirement.     No  engagement  or  security,  however  good,  can 
be  substituted  even  temporarily,  and  the  affidavit  of  the  actual   pay- 
ment must  be  filed  with  the  certificate.     However  honest  the  intention 
of  the  parties  may  be,  if  this  affidavit  is  not  absolutely  tine,  the  conse- 
quences prescribed  by   the  statute  must  follow,  and    th.y  cannot  be 
averted  by  a  subsequent  payment,  nor  by  the  consideration  that  no 
injury  resulted  to  any  creditor  from  the  affidavit  not  being  true  when 
made.     The  payment  in  this  case  was  made  by  a  check  of  the  special 
partner,  dated,  and  therefore  payable,  on  the  31st  of  December,  1870. 
This,  clearly,  was  not  cash  on  the  23d,  when  it  was  delivered  u>  the 
general  partners,  and  the  affidavit  was  made.     It  was.  in  fact,  paid  on 
presentation,  on  the  2d  of  January,  1871."     So  far  as  the  question  we 
consider  is  concerned,  the  case  thus  decided  appears  to  be  precisely  in 
point.     It  is  the  deliverance  of  the  Court  of  Last  Resort  of  New  York, 
and  it  remains  undisturbed.     Buck  v.  Alley,   145  N.  Y.  488,  494.      It 
coincides  with  our  interpretation  of  the  statute,  and  therefore  it  is  not 
necessary  that  we  shall  determine   its  importance  :is  an  authoritative 
interpretation  of  the  meaning  of  the  law.      Print    Works  '•.  Lawrence. 
23  N.  J.  Law,  590  ;  Black  v.  Canal  Co..  l'l'  N.  .1.  Eq.  422. 

Other  questions  are  presented  by  the  assignment  of  error  j  but.  as 
the  point  decided  is  sufficient  to  sustain  the  plaintiffs  recovery,  it  is 
unnecessary   to   pass   upon  them. 

The  judgment  of  the  Supreme  Court  will  be  affirmed. 


646  LIMITED    PARTNERSHIPS.  [CHAP.  IX 


§  4.     Notice  to  Creditors. 

TAYLOR   v.    RASCH    et   al. 

11  N.  B.  R.  91  :  1  Flip.  385.     1875. 

Plaintiff,  as  assignee  in  bankruptcy  of  Tillman,  Silsbee,  &  Co.,  sued 
defendants,  as  partners,  for  furniture  sold  and  delivered  to  them  by  plain- 
tiff's assignors,  of  the  agreed  value  of  $523.25,  less  $50  paid  in  cloth- 
ing sold  and  delivered  by  defendants  to  an  employee  of  said  assignors. 
Defence  that  the  firm  of  Tillman,  Silsbee,  &  Co.  agreed  with  defendants, 
that  if  the  latter,  or  either  of  them,  would  purchase  furniture  of  Till- 
man, Silsbee,  &  Co.,  that  then  the  said  firm,  or  any  of  its  members, 
would  purchase  clothing  of  the  defendant  in  payment  of  the  same  ;  and 
that  pursuant  to  said  agreement  William  Tillman  of  said  firm  purchased 
and  received  clothing  from  the  defendants  to  the  value  of  $438. 

Ashley  Pond,  for  the  complainant. 

0.  Kirchener  and  G.   V.  JV.  Z/Othrop,  for  defendants. 

Longyear,  Judge.  The  firm  of  Tillman,  Silsbee,  &  Company  was  a 
limited  partnership,  and  was  composed  of  William  Tillman  and  Charles 
E.  Silsbee  as  general  partners,  and  John  S.  Newberry  as  special  part- 
ner. Whatever  the  proofs  show  as  to  the  general  partners  being  parties 
to  the  arrangement  for  exchange  of  patronage  between  them  and  the 
defendants,  or  as  to  what  the  particular  character  of  that  transaction 
was,  one  thing  is  certain,  and  that  is,  there  is  no  proof  or  pretence 
that  the  special  partner  was  in  any  way  privy  to  the  arrangement,  or 
knew  of  it,  or  in  any  wa}*  assented  to  it.  It  is  contended,  however, 
that  b}r  the  statutes  of  Michigan  the  general  partners  had  authorit}*  to 
bind  the  firm.  The  statute  referred  to  is  as  follows  :  "  §  3.  The  gen- 
eral partners  only  shall  be  authorized  to  transact  business,  to  sign  for 
the  partnership,  and  to  bind  the  same."  1  Compiled  Laws  of  1871, 
p.  520,  §  1569.  The  effect  of  the  statute  is  simply  to  exclude  the 
special  partner  from  active  participation  in  the  business  of  the  firm  ; 
and  as  to  the  general  partners,  it  confers  no  authority  upon  them  to 
transact  business,  sign  for  the  partnership,  and  to  bind  the  same  in  any 
manner  or  to  any  extent  whatever  beyond  the  purposes  and  scope  of 
the  partnership.  Therefore,  conceding  that  the  arrangement  in  ques- 
tion was  made  with  the  general  partners,  as  claimed  in  the  answer,  if 
it  was  not  within  the  scope  and  purposes  of  the  partnership,  it  was 
wholly  unauthorized  and  therefore  void.  This  brings  us  to  the  second 
and  only  remaining  issue  made  bj-  the  answer. 

The  scope  and  purposes  of  the  partnership  are  specified  in  the 
articles  to  be  as  follows:  "  Second.  That  the  general  nature  of  the 
business  to  be  transacted  by  said  partnership  is  the  purchase,  sale,  and 
manufacture  of  all  kinds  and  descriptions  of  furniture,  chairs,  uphol- 
stering, furnishing  and  upholstering  goods,  lumber,  and  all  kinds  of 
articles,  merchandise,  tools,  and  machinery,  used  in  such  manufactures." 


§  5.]  CREDITORS   MAY   BE   ESTOPPED. 

Surely  it  does  not  require  argument  to  show  that  a  contract  for  the 
purchase  of  clothing  for  the  individual  general  partners,  or  other* 
does  not  come  within  ••  the  general  nature  of  the  business  to  be  ti 
acted  by  said  partnership,"  as  specified  in  the  articles. 

But  it  was  contended  that  sucb  bad  been  the  usual  course  of  busi- 
ness of  the  firm,  and  proofs  were  adduced  tending  to  show  that  such 
was  the  fact;  and  it  was  argued  that  therefore  the  defendants  had  a 
right  to  assume  that  the  transaction  was  within  the  scope  of  the  part- 
nership. The  articles  of  co-partnership  were  duly  Bled  and  published, 
as  required  by  the  statute,  ami  all  persons  dealing  with  the  firm  w 
bound  to  take  notice  of  and  were  chargeable  with  knowledge  of  their 
contents.  No  departure  by  the  general  partners,  no  matter  bow  com- 
mon or  long  continued,  if  not  consented  to.  or  known  and  acquiesced 
in  by  the  special  partner,  could  have  the  effect  to  change  or  enlarge  the 
scope  of  the  business  as  specified  in  the  articles.  To  hold  the  contrary 
would  be  to  disregard  plain  provisions  of  law  lor  the  protection  of 
special  partners  and  the  public,  and  would  make  a  limited  partnership 
one  of  extreme  hazard  to  the  special  partner. 

In  the  opinion  of  this  court,  overruling  the  demurrer  to  the  bill  ( .".  V 
B.  R.  399),  it  was  shown  that  a  general  partnership  could  not  be  made 
liable  upon  a  contract  by  an  individual  partner  out  of  the  scope  of  the 
partnership  business.  The  same  principle  of  law  that  protects  general 
partners  from  liability  in  such  cases  protects  the  capital  of  special  part- 
ners in  a  limited  partnership.     Troubat  on  Lim.  Partn.  ^  : i 7 7 . 

It  results  that  the  complainant  is  entitled  to  a  decree  against  the 
defendants  for  the  balance  of  the  account  of  Tillman.  Silsl.ee.  &  Co. 
against  them,  after  deducting  850  paid  to  the  linn  by  one  of  its 
employees  on  account  of  defendants,  with  interest  and  costs. 

D,  en  i  accordingly. 


§5.     Creditors  may  he  Estopped. 

HARLAX,   J.,   ix  TRACY   et  al.   v.   TUFFLY. 

134  TT.  S.  206,  226-228.     1889. 

The  jury  were  instructed  :  "  If  you  shall  find  from  the  evidence  that 
the  limited  partnership,  as  stated  and  claimed  by  plaintiff,  was  recog- 
nized as  such  in  its  inception  by  the  three  attaching  creditors,  defend- 
ants herein,  and  likewise  during  its  existence  was  dealt  with  and  credited 
as  such  by  them,  as  well  as  sued  therefor  and  its  property  attached 
as  such  after  its  assignment,  and  that  its  other  creditors  also  treated  and 
dealt  with  it,  and  accepted  its  assignment  to  plaintiff  as  Buch,  and  that 
Mrs.  McLin,  named  therein  as  special  partner,  and  \V  T.  Tuffly, 
named  therein  as  the  general  partner,  and  whose  name  constituted  the 
firm  name,  always  treated  it  as  a  limited  partnership,  and  that  .Mis. 


648  LIMITED    PARTNERSHIPS.  [CHAP.  IX. 

McLin  loaned  it  money  as  claimed,  and  subsequently  sued  the  plaintiff 
as  its  assignee  therefor,  then  }-ou  likewise  may  deem  the  same  a  limited 
partnership,  and  regard  the  assignment  to  plaintiff  as  valid.  If  you 
shall  also  fiud  that  the  same  was  made  at  a  time  when  the  W.  T. 
Tuffly  paper  was  maturing  faster  than  it  could  be  met  in  the  ordinary 
and  usual  course  of  business,  and  that  such  assignment  was  made  in 
good  faith  in  contemplation  of  insolvency ;  and  if  you  shall  further 
find  that  the  defendant  Tracy,  as  United  States  marshal,  seized  the 
property  so  assigned,  under,  and  by  virtue  of,  the  attachments  of  the 
three  creditors  who  have  made  themselves  defendants  herein,  then  }-ou 
will  find  for  the  plaintiff  as  against  defendants  Tracy  and  the  sureties  on 
his  official  bond,  and  the  three  firms  of  attaching  creditors  for  the 
value  of  the  goods  as  they  were  at  the  time  and  place  of  their  seizure 
under  such  writs  of  attachment,  such  value  to  be  ascertained  from  all 
the  facts  detailed  in  evidence  before  you.  But  if  3-ou  shall  otherwise 
find  as  to  the  facts  constituting  the  rights  of  the  parties  as  herein- 
before set  forth,  then  and  in  such  case  your  verdict  will  be  for  the 
defendants." 

According  to  the  bills  of  exceptions,  there  was  evidence  tending  to 
prove  all  the  facts  stated  in  these  instructions.  The  attaching  credi- 
tors, with  other  creditors,  described  them  in  the  release  executed  b}* 
them  at  about  the  time  of  the  formation  of  the  limited  partnership  as 
constituting  a  limited  partnership,  in  which  W.  T.  Tuffiy  was  the  gen- 
eral, and  Mrs.  McLin  the  special,  partner.  If  the  attaching  credi- 
tors thus  recognized  and  dealt  with  W.  T.  Tuffly  and  Mrs.  McLin  as 
a  limited  partnership,  they  are  estopped  from  insisting  that  there  was 
no  such  partnership,  or  that  the  assignment  was  not  valid  as  an  assign- 
ment by  a  limited  partnership.  They  cannot  be  permitted  thereafter 
to  raise  the  objection  that  the  terms  of  the  partnership  were  not  suffi- 
ciently stated  in  the  published  notice  of  its  formation.  Those  terms 
were  fully  set  forth  in  the  recorded  certificate  of  the  partnership. 

But  as  the  defendants  contended  that  their  recognition  of  the 
limited  partnership  was  in  ignorance  of  material  facts  bearing  upon 
that  question,  and  therefore  they  were  not  estopped,  the  court,  at  their 
instance,  further  instructed  the  jury:  "If  the  proof  shows  you  that 
Mrs.  McLin  never  in  fact  contributed  the  amount  to  the  common  stock 
necessary  to  make  her  a  special  partner,  or  that  she  afterward  altered 
and  diminished  the  amount  of  her  capital  stock,  and  that  these  facts,  or 
either  of  them,  were  unknown  to  the  attaching  creditors,  at  the  time 
they  dealt  with  the  firm,  and  sued  W.  T.  Tuffiy,  then  you  are  instructed 
that  neither  the  recognition  and  dealing  by  them  with  Tuffly  and  Mrs. 
McLin  as  a  limited  partnership,  nor  the  suing  of  W.  T.  Tuffly  in  igno- 
rance of  said  facts,  estops  or  precludes  them,  or  aivvof  the  defendants, 
from  showing  that  said  partnership  was  never  in  fact  legally  formed  as 
a  limited  partnership,  for  the  reason  above  stated,  nor  from  showing 
that  it  afterwards,  b}-  reason  of  the  alteration  and  diminution  of  Mrs. 
McLin's  capital  stock,  was  rendered  a  general  partnership." 


§  5.]  CREDITORS    MAY    BE    ESTOPPED.  649 

This  instruction  gave  the  defendants  the  full  benefit  of  all  the  facts 
upon  which  they  could  rely  to  defeat  the  estoppel  referred  to  in  the 
other  instruction. 


STAVER,    &c.   MANUFG   CO.    v.   BLAKE    ir   ai.. 
09  N.  W.  (Mich.)  508.     18 

Grant,  J.     The  defendants  arc   the-  members  and  owners  of  the 
stock  of  the  Grand  Rapids  Storage  &  Transfer  Company.   Limited,  an 
association  organized  May  13,  1890,  under  chapter  79,  How.  Ann.  St. 
The  plaintiff  is  a  manufacturing  corporation  of  Chicago,  111.     It  sues 
for  merchandise  alleged  to  have  been  sold  and  delivered  to  the  defend- 
ants.    The  declaration  is  upon  the  common  counts.     The  bill  of  par- 
ticulars is  for  merchandise  sold,  for  which  notes  were  given,  ••  executed 
by  the  name  of  Grand  Rapids  Storage  &  Transfer  Company,  Limited," 
dated  January,  May,  and  October,  1895.     No  claim  is  made  that  ti 
defendants  made  individual  promises,  upon  the  faith  of  which  th 
goods  were  sold  and  delivered,  or  that  they  had  ever  expresslj  formed 
a  partnership,  or  that  they  had  ever  held  themselves  out  to  plaintiff 
as  co-partners.     The  sole  basis  for  the  right  of  reeovery  againsl  them 
is  the  failure  of  the  original  organizers  to  comply  with  the  Btatute  in 
organizing,    and  non-compliance  with  the  statute  in   carrying  on    the 
business  after  it  was  organized.      These  defects   are   stated 'by    the 
learned  counsel  to  be  as   follows:   (1)  The  articles  did  not  state  when 

and  how  $7,000  were  to  be  paid.     (2)  They  falsely  stated  that  $13,1 

in  cash  had  been  paid  in,  when,  as  a  matter  of  fact,  property  instead 
of  money  had  been  paid  in,  without  any  schedule  containing  the  names 
of  the  parties  contributing,  with  a  description  and  valuation  of  the 
property  contributed.  (3)  No  yearly  or  other  meetings  of  the  members 
of  the  association  were  held  for  five  years.  (4)  No  managers  ol  the 
association  were  elected  for  upward  of  five  years.  1 5  )  No  subscription 
book  was  kept,  as  required  by  the  statute.  (G)  The  statute  was  not 
observed  in  the  matter  of  contracting  debts.  (7)  The  statute  was  not 
observed  in  using  the  word  -  Limited  "  in  connection  with  the  associate 
name.  The  defendants  contend  (1)  that  the  company  was  properly 
organized  ;  (2)  that  the  plaintiff  was  estopped  to  deny  that  the  associa- 
turn  was  legally  organized,  and  to  assert  partnership  relations,  because 
it  dealt  exclusivelv  with  the  association,  and  no,  with  its  members  as  a 
partnership;  (3)  that  partnership  associations  limited  are  corporations 
(4)  that  the  express  penalties  imposed  by  the  statute  for  its  violation 
exclude  all  others:  CO  that  these  defendants,  as  subsequenl  stock- 
holders, are  innocent  purchase,-.,  and  therefore  no.  liable  for  irregular- 
ities  in  the  organization  or  its  management. 

1    The  Original  Organization.     There  is  no  evidence  ol    am    dia 
honesty  or  bad   faith  in  the   formation   of  this  association.     It   was 


650  LIMITED   PARTNERSHIPS.  [CHAP.  IX. 

organized  under  the  advice  of  eminent  counsel,  who  drew  the  articles. 
On  March  29,  1890,  eight  citizens  of  Grand  Rapids  signed  an  agree- 
ment to  form  an  association  to  be  known  as  the  Grand  Rapids  Storage 
&  Transfer  Company,  Limited.  This  agreement  specified  the  amount 
each  was  to  contribute.  $12,800  were  thus  contributed,  and,  when  the 
articles  were  formed,  this  was  so  stated  therein.  This  money  was 
invested  in  the  purchase  of  property  and  the  erection  of  a  building  for 
the  business  of  the  association.  The  capital  stock  was  fixed  at  $20,000. 
$7,200  remained  unpaid,  and  the  articles  did  not  specify  when  or  how 
it  should  be  paid.  Technically,  the  $12,800  of  capital  was  not  paid 
in  cash  at  the  time  of  the  execution  of  the  articles.  It  was,  how- 
ever, paid  in  shortly  before,  and  for  the  purpose  of,  forming  the  as- 
sociation, and  had  been  expended  in  the  purchase  of  property  for  it; 
and  to  use  in  its  business. 

Subsequent  Management.  It  is  true  that  meetings  were  not  held, 
and  managers  elected,  and  debts  incurred,  in  strict  compliance  with  the 
statute.  The  business  was  conducted  in  the  name  of  the  association, 
and   without  any  fraudulent  intent  or  acts. 

2.  The  Provisions  of  the  Law.  This  act  was  passed  in  1887,  and  is 
entitled  "  An  act  authorizing  the  formation  of  partnership  associations, 
in  which  the  capital  subscribed  shall  alone  be  responsible  for  the  debts 
of  the  association,  except  under  certain  circumstances."  Section  1 
declares  that  "  the  capital  shall  alone  be  liable  for  the  debts  of  such 
association.  .  .  .  Contributions  to  the  capital  stock  ma}r  be  made  in 
real  or  personal  estate,  at  a  valuation  to  be  approved  by  all  the 
members  subscribing  to  the  capital  of  such  associations."  It  also 
requires  a  schedule  containing  the  names  of  such  contributors,  and  the 
description  and  valuation  of  the  property  so  contributed.  Section  2 
provides  that  the  members  shall  not  be  liable  on  any  judgment,  decree, 
or  order  which  shall  be  obtained  against  such  association,  or  for  any 
debt  or  engagement  of  such  company,  otherwise  than  is  provided  by 
the  act.  This  section  further  provides  for  proceedings  in  such  cases, 
and  makes  the  members  liable  for  labor  debts.  It  limits  the  liabilities 
of  stockholders  to  the  amount  of  their  unpaid  subscriptions,  and  re- 
quires a  subscription  list  to  be  kept,  which  shall  be  open  to  inspection 
by  creditors  and  members  at  all  reasonable  times.  Section  6  prohibits 
division  of  profits  to  diminish  or  impair  the  capital  of  the  association, 
and  makes  any  one  consenting  to  such  a  division  liable  to  an}-  persons 
interested  or  injured  thereby,  "  to  the  amount  of  such  division  or 
impairment."  Section  3  provides  that  "  the  omission  of  the  word 
'  Limited '  in  the  use  of  the  name  of  the  partnership  association  shall 
render  each  and  every  member  of  such  partnership  liable  for  any 
indebtedness,  damage,  or  liability  arising  therefrom." 

3.  Plaintiffs  action  is  based  upon  contract,  not  upon  tort.  It  insists 
that  the  letter  of  the  law,  in  the  formation  and  conduct  of  the  partner- 
ship association  limited,  has  not  been  complied  with,  and  therefore  the 
law  makes  the  defendants  either  partners  or  members  of  a  joint-stock 


§  O.J  CREDITORS  MAY  BE  ESTOPPED.  651 

company  at  the  common  law,  and  therefore  individually  liable.     Neithei 
of  these  defendants  was  interested  in  this  association  at  its  oreaniza- 

tion.    The  husband   of  Mrs.   Blake   was  one  of  the  principal  stock- 
holders.    She  advanced  to  him  the  money  which  he  originally  paid  in, 

and  aUo  the  money  with  which  he  purchas  in  after  thi       .     .na- 

tion, most  of  the  other  stock.  The  stock  was  assigned  to  her  as 
curity.  Subsequently,  she  discharged  the  liability  of  her  husband,  and 
took  the  stock,  and  now  owns  all  but  $200  worth,  owned  by  the  de- 
fendants Aldrich  and  Pantland.  None  of  Hum-  were  aware  of  anv- 
il-regularity in  the  original  organization  or  in  its  subsequent  man 
meut.  Plaintiff  had  for  several  years  dealt  with  thi-  association  as 
such.  Its  correspondence  was  carried  on  with  it.  Its  contracts  ■• 
made  with  it.  It  had  no  belief  that  it  was  making  any  contract  with 
these  defendants,  or  that  they  were  individually  liable,  for  the  corre- 
spondence and  course  of  business  refute  any  such  conclusion.  The  very 
name  of  the  association  implied  a  warning  to  plaintiff  that  it  was  not 
dealing  with  the  members  or  stockholders  of  this  association  in  their 
individual  capacity,  but  in  their  associate  capacity,  with  their  liability 
limited.  It  is  presumed  to  know  the  law.  ami  a  reading  of  the  statute 
■would  have  shown  it  that  the  members  of  this  association  could  only 
be  held  liable  for  the  amount  of  stock  subscribed.  *  It  therefore  dealt 
with  this  association  with  full  knowledge  of  the  extent  of  the  liability 
of  its  members.  The  liability  fixed  by  statute  is  stili  open  to  it.  If 
the  managers  or  members  of  the  association  committed  a  fraud  by 
•which  the  plaintiff  or  any  other  creditor  suffered  damage,  the  law  pro- 
vides a  remedy  in  tort,  but  not  in  contract.  The  law  does  not  make 
contracts  for  parties.  The  law  takes  the  contracts  which  have  been 
made,  and  interprets  them.  The  law  does  not  permit  A.  to  deal  and 
make  contracts  with  B.  in  one  capacity,  and  then  hold  him  liable  in 
another.  A  partnership  can  only  be  held  to  exist  !i,t>rs<s<  when  the 
parties  have  so  agreed.  "When  no  such  partnership  in  fact  exists,  but 
a  party  has  held  himself  out  as  such  to  third  persons,  who  have  dealt 
with  him  upon  the  faith  of  that  relation,  the  law  estops  him  to  assert 
the  true  relation  in  order  to  avoid  liability.  Under  no  other  circum- 
stances does  the  law  hold  one  liable  as  a  partner  who  is  not  in  fact  a 
partner.  This  court  said,  speaking  through  Justice  Cooky,  in  Beecher 
v.  Bush,  45  Mich.  193:  "If  parties  intended  no  partnership,  the 
courts  should  give  effect  to  their  intent,  unless  somebody  has  been 
deceived  by  their  acting,  or  assuming  to  act.  as  partners;  and  any 
such  case  must  stand  upon  its  peculiar  facts,  and  upon  Bpecial  equi- 
ties." See  also  Webb  v.  Johnson,  '.»■">  Mich.  880.  We  cite  no  other 
authorities,  as  the  rule  is  elementary. 

These  defendants  have  never  agreed  to  be  partners,  and  have  never 
held  themselves  out  to  plaintiff  or  to  the  world  as  such.  By  the  pur- 
chase of  stock,  they  became  members  of  a  body,  organized  andi 

law,  which  made  its  capital. and   assets   alone  liable  for  its  debts.      Tin- 
is  the  legal  entity  —  and  it  is  immaterial  what  name  you  give  it  —  v\iih 


652  LIMITED    PARTNERSHIPS.  [CHAP.  IX. 

which  plaintiff  dealt,  made  contracts,  and  to  which  it  gave  credit.  The 
statute  contains  not  a  sentence  from  which  any  individual  or  partner- 
ship liability  can  be  inferred.  Upon  what  principle  of  common  sense, 
justice,  or  equity  can  it  now  be  held  that  plaintiff,  having  trusted  this 
entity,  can  recover  its  entire  debt  from  one  with  whom  it  never  con- 
tracted, and  who  never  promised  to  pay  ?  It  is  unnecessary  to  deter- 
mine whether  these  associations  are  corporations  under  our  constitution, 
which  provides  that  the  term  "corporations"  shall  be  construed  to 
include  all  associations  and  joint-stock  companies  having  any  of  the 
powers  or  privileges  of  corporations  not  possessed  by  individuals  or 
partnerships.  Article  15,  §  11.  It  is  the  established  rule  that  those 
dealing  with  corporations  are  estopped  to  deny  the  lawful  existence 
thereof,  and  cannot,  therefore,  hold  the  stockholders  individually  liable, 
unless  such  liability  is  imposed  by  the  statute.  This  rule  is  based 
upon  two  grounds:  (1)  That  it  is  against  public  policy  to  permit 
the  existence  of  these  corporations  to  be  attacked  collaterally  in  suits 
between  them  and  others.  It  is  reserved  for  the  State  alone  to  question 
their  legal  existence  through  its  law  department.  (2)  Because  parties 
have  dealt  with  it  as  a  corporation,  and  not  upon  the  faith  of  the  indi- 
vidual liability  of  its  stockholders.  We  see  no  reason  why  the  doctrine 
of  estoppel  should  not  be  applied  in  the  one  case  as  well  as  in  the 
other.  There  is  no  difference  in  principle  between  the  two.  Each  is 
a  legal  entity,  whose  sole  warrant  for  existence  is  found  in,  and  whose 
powers  and  liabilities  are  fixed  by,  statute.  The  doctrine  of  estoppel 
in  this  case  need  not,  however,  be  based  upon  the  determination  of  the 
question  as  to  whether  the  Grand  Rapids  Storage  &  Transfer  Company, 
Limited,  was  a  corporation.  If  these  defendants,  in  the  absence  of  an}* 
statute,  had  associated  themselves  together  upon  the  same  terms  as 
those  provided  by  this  statute,  had  limited  their  liability  in  the  same 
manner  and  for  the  same  amount,  had  furnished  plaintiff  with  a  copy 
of  that  agreement,  and  it  had  sold  them  goods,  the  law  would  not  per- 
mit him  to  recover  against  them,  either  as  individuals  or  as  partners. 
It  had  dealt  with  them  and  trusted  them  upon  the  strength  of  their 
limited  liability-  It  had  agreed  to  look  to  this  alone,  and  the  law  will 
hold  it  to  its  undertaking.  This  rule  is  founded  in  good  morals,  as 
well  as  good  law.  The  policy  of  the  law  for  partnership  associations 
limited  is  to  relax  the  common-law  rule,  to  permit  parties  to  limit  their 
liability,  and  exempt  themselves  from  a  liability  wdiich  ma}'  be  ruinous. 
Whether  the  policy  is  wise  or  unwise  is  a  question  for  the  legislature, 
and  not  for  the  courts. 

The  injustice  in  sustaining  the  plaintiffs  contention  is  manifest. 
The  law,  as  construed  by  counsel  for  plaintiff,  says  to  A.,  who  does 
not  wish  to  actively  engage  in  business,  and  be  held  responsible  for  its 
management:  "You  ma}-  invest  $1,000  in  the  stock  of  one  of  these 
associations  ;  and,  although  the  law  limits  your  liability  to  the  amount 
of  capital  subscribed,  still  if  there  has  been  any  defect,  however  in- 
nocently made,  in  the  original  articles  of  association,  or  in  its  subse- 


§  6.]  REMOVAL    TO    A2TOTHEB    COUNTY. 

quent  management,  you  can  be  held  liable  for  all  the  d.  the 

association."  Such  a  rule  is  not  rounded  in  justice,  common  si 
sound  logic,  or  good  morals.  Even  in  construing  the  statute.-  lor 
the  formation  of  limited  partnership,  no  Buch  harsh  rule  i>  al? 
applied.  Buck  v.  Alky,  145  N.  Y.  188,  196.  The  law  of  Mich- 
igan prohibited  a  corporation  from  doing  any  business  before  filing  its 
articles  of  association.  A  corporation  was  formed  under  this  law.  but, 
before  it  had  completed  its  organization  by  filing  its  articles,  its  pru- 
dential committee  purchased  goods.  Suit  was  brought  against  this 
committee,  who  were  directors,  based  upon  the  personal  liability  of  the 
members.  The  court,  in  deciding  the  case,  said:  ••It  Beems  to  us 
entirely  clear  that  both  parties  understood  and  meant  that  the  contract 
was  to  be.  and  in  fact  was.  with  the  corporation,  and  ool  with  the 
defendants  individually.  The  agreement  thus  made  could  not  be  after- 
wards changed  by  either  of  the  parties  without  the  consent  of  the  other. 
Utley  v.  Donaldson.  94  l'.  S.  29.  .  .  .  The  corporation  having  assumed 
by  entering  into  the  contract  with  the  plaintiff,  to  have  the  requisite 
power,  both  parties  are  estopped  to  deny  it."  Whitney  v.  Wyman,  1"1 
U.  S.  392,  396. 

We  are  aware  that  this  decision  is  not  in  harmony  with  the  decisions 
of  the  Supreme  Court  of  Pennsylvania,  but  in  so  far  as  those  decisions 
adopt  the  rigorous  rule  that  the  members  of  these  associations  are 
liable  as  partners  because  of  some  irregularity  or  defect  in  their  organ- 
ization or  management,  and  thereby  read  into  the  statute  a  penalty 
which  it  does  not  impose,  but  which,  by  a  fair  construction  of  the 
statute,  is  excluded,   we  cannot  follow  them. 

In  one  instance,  in  dealing  with  the  plaintiff,  the  manager  of  this 
association  omitted  the  word  "Limited."  No  testimony  was  introduced 
on  the  part  of  plaintiff  to  show  that  any  "  indebtedness,  damage,  or 
liability* "  arose  to  it  in  consequence  of  this  single  act,  and  therefore 
no  right  of  action  from  this  cause  was  shown  to  exist. 

Th<  judgment  is  affirmed. 


§  6.     Removal  to  Another  County. 

•    RIPER   v.   POPPENHAUSEN  kt  al. 

4:!  X.  Y.  68.     1870. 

Peckiiam,  J.  The  action  was  for  goods  sold  and  delivered  to 
John  G.  Perzel,  and  the  testator,  as  general  partners.  The  facts,  as 
found  and  conceded,  are  that  the  testator  and  John  <i.  Perzel,  in 
October,  1865,  formed  a  special  partnership  in  the  city  of  New  York, 
Perzel  being  the  general,  and  the  testator  the  special,  partner.  The 
special  partner  contributed   $20,000    in  cash   to   the    business.      The 


654  LIMITED    PARTNERSHIP'S.  [CHAP.  IX 

law  in  respect  to  special  or  limited  partnerships,  was  in  all  respects 
complied  with  for  the  county  of  New  York.  The  certificate  was  filed 
and  recorded  there,  and  the  firm  proceeded  with  their  business  from 
October,  1865,  to  January  6,  1866,  when  the  firm  discontinued  their 
business  in  New  York  of  manufacturing  woollen  goods,  and  gave  up 
their  place  of  business  there.  On  the  12th  day  of  June,  1866,  the 
firm  commenced  the  same  business  in  the  county  of  Kings,  in  a  man- 
ufactory they  had  built  there.  But  no  certificate  of  the  terms  of  part- 
nership, or  transcript  of  the  certificate  filed  in  New  York,  was  ever 
filed  or  recorded  in  Kings  County.  It  does  not  appear  that  the  firm 
ever  had  any  place  of  business  at  any  time  other  than  stated.  The 
question  is,  was  this  a  general  or  special  partnership  in  Kings 
County  ? 

It  is  true  that  the  statute,  in  regard  to  "  limited  partnerships," 
does  not,  in  so  many  words,  require  a  statement  in  the  certificate  of 
the  place  where  the  firm  will  do  business;  but  looking  at  its  different 
provisions,  it  is  entirely  clear  that  the  principal  or  main  place  of 
business  must  be  where  the  certificate  of  its  terms  is  filed  and 
recorded;  at  least  a  place  of  business  must  be  there. 

After  stating  what  the  certificate  of  the  terms  of  the  special  co- 
partnerships shall  contain,  the  act  provides  that  it  shall  be  filed  in 
the  office  of  the  clerk  of  the  county  in  which  the  "  principal  place  of 
business"  shall  be  situated.  If  the  partnership  shall  have  places  of 
business  situated  in  different  counties,  a  transcript  of  the  certificate 
duly  certified  shall  be  filed,  etc.,  in  the  office  of  the  clerk  of  every 
such  county.  1  R.  S.  764,  §  6.  A  publication  of  the  terms  of  the 
partnership  for  six  weeks  in  two  newspapers,  published  in  the 
senate  district,  in  which  "  their  business  shall  be  carried  on,"  is  also 
required;  otherwise  "  the  partnership  shall  be  deemed  general." 
§  9.  It  is  also  provided  that  no  such  partnership  shall  be  deemed  to 
have  been  formed  "  uutil  a  certificate  shall  have  been  made,  acknow- 
ledged, filed,  and  recorded,"  etc.,  and  an  affidavit  of  the  amount  of 
cash  capital  paid  in,  shall  be  filed. 

Thus  the  act  carefully  and  fully  provides  for  filing  a  statement  of 
the  terms  of  the  partnership,  and  for  a  publication  thereof  in  the  place 
where  their  business  is  carried  on,  so  that  the  business  public  there  may 
have  full  knowledge  of  the  situation  of  the  firm.  But  the  act  makes 
no  provision  for,  and  evidently  does  not  contemplate  a  removal  by 
the  firm  of  its  place  of  business  to  another  county.  It  does  provide 
for  branches  of  the  business  of  the  firm  in  different  counties.  In 
such  a  case  a  certified  copy  of  the  certificate  must  be  filed  in  each  of 
said  counties,  but  not  for  a  removal.  That  is  left  wholly  unprovided 
for.  So  that,  if  a  firm  entirely  discontinue  business  in  the  original 
county  and  go  to  another,  the  act  affords  them  no  protection  as 
special  partners  iu  this  new  location. 

To  allow  a  firm  who  had  complied  with  the  statute  to  do  business 
as  special  partners  in  New  York  County,  to  remove  their  only  place 


§  7.]  RENEWAL    CERTIFICATES. 

of  business  to  Buffalo,  and  proceed  there  without  filing  anv 
or  making  any   publication,   would  substantially  nullify  thoe 
visions.     It  thus  appears  that  the  defendants,  so  far  as  respects  theii 
business  in  Kings  County,  were  general   and   not   special   parti. 
The  plaintiff  sold  them  goods  in  Kings  (  ounty,  while  they  wen 
business  there,  and,  as  to  him,  they  are  therefore  general  partners. 

This  may  well  be  regarded  as  a  remedial  statute,  and  it  Bhould 
receive  a  liberal  construction,  with  a  view  "  to  Buppress  the  mischief 
and  advance  the  remedy."  For  many  years  it  has  been  dee 
desirable  for  the  benefit  of  trade  and  to  aid  young  men  of  integrity 
and  capacity,  but  without  means,  that  these  limited  partnerships 
should  be  formed.  If  the  special  partner  substantially  comply  with 
the  requirements  of  the  act.  he  should  hazard  nothing  but  his  special 
capital  in  a  business  which  he  cannot  personally  conduct  It  is  not 
every  technical  violation,  every  failure  to  comply  with  the  letter  of 
the  law,  that  should  deprive  him  of  such  exemption.  Thus  it  was 
held  that  a  mistake  in  publishing  the  time  when  a  partnership  com- 
mences, stating  it  to  be  the  10th  of  November,  when  it  .should  have 
been  October,  did  not  make  them  general  partners.  The  .Mad  I 
Bank  v.  Gould,  5  Hill,  309,  311. 

It  is  unnecessary  in  this  case  to  decide  whether  the  omission  to  file 
a  transcript  of  the  certificate  of  the  terms  of  the  partnership  in  another 
county,  when  the  firm  established  a  branch  business  there,  would 
make  them  general  partners.   .   .   . 

Judgment  affirmed^  n-ltJt  <■■ 


§  7.     Renewal  Certificates. 

FOURTH   STREET   NAT.    BANK    v.    WHITAKEB    i  r  at.. 

170  Pa.  St.  297:  33  At.  100.     1  895. 

Dean,  J.  On  the  31st  of  December.  1891,  Granville  1'-.  Haines, 
Richard  Wood,  Samuel  B.  Brown,  Richard  W .  Bacon,  and  William 
"Whitaker,  of  Philadelphia,  by  the  name  of  Haines  &  Co.,  formed  a 
limited  partnership,  under  the  Act  of  1836,  for  carrying  on  a  whole- 
sale and  retail  dry-goods  business.  The  term  of  the  partnership  was 
one  year.     Richard  W.  Paeon  and  William   Whitaker   were  special 

partners,   the  others    general.       The  special  Contribution  Of   capital    by 

each  of  the  special  partners,  Paeon  and  Whitaker.  was  $100, 

$50,000  each  in  eash.  and  a  like  sum  in  merchandise;  their  entire 
contribution  as  special  partners  being  $200,000.  The  articles  of 
association  were  subscribed  by  all  the  partners,  duly  acknowledged, 
and  recorded  in  the  office  of  the  recorder  of  deeds  for  Philadelphia. 
At  the  end  of  the  year  1892,  under  the  provisions  of  the  eleventh 


656  LIMITED    PARTNERSHIPS.  [CHAP.  IX. 

section  of  the  Act  of  1836,  the  partnership  was  renewed  for  another 
year.  That  section  reads  thus:  "  Every  renewal  or  continuance  of 
such  partnership,  beyond  the  time  originally  fixed  for  its  duration, 
shall  be  certified,  acknowledged,  and  recorded,  and  an  affidavit  of  a 
general  partner  be  made  and  filed  and  notice  be  given  in  the  manner 
herein  required  for  its  original  formation,  and  every  such  partner- 
ship which  shall  be  otherwise  renewed  or  continued  shall  be  deemed  a 
general  partnership."  In  the  articles  of  renewal  is  this  averment, 
referring  to  their  articles  of  the  year  previous:  "  The  amount  of  cap- 
ital contributed  by  the  said  special  partners  to  the  common  stock 
was  $100,000,  one-half  thereof  being  in  cash  and  the  other  half 
thereof  being  in  goods  and  merchandise,  making  the  aggregate 
amount  of  capital  contributed  by  them  $200,000,  as  designated  in 
the  said  original  certificate;  and  the  same  remains  unimpaired  and 
undiminished  as  their  contribution  to  the  present  renewal  and  con- 
tinuance of  the  said  limited  partnership,  being  in  merchandise,  an 
inventory  and  appraisement  whereof  have  been  filed  in  the  Court  of 
Common  Pleas,  No.  3,  of  Philadelphia  County."  On  the  expiration 
of  this  renewed  partnership  at  the  end  of  the  year  1893  there  was 
another  renewal  for  a  year,  with  like  averments  and  certificate  in  the 
renewed  articles,  which  were  also  made  of  record,  as  required  by  the 
act.  The  business  was  carried  on,  under  this  last  renewal,  until 
the  26th  of  March,  1894,  when  a  general  assignment  for  the  benefit  of 
creditors  was  made  by  the  partnership.  Before  the  assignment,  the 
Fourth  Street  National  Bank,  the  plaintiff,  became  the  holder,  for 
value,  of  six  notes  drawn  by  the  partnership,  each  in  the  sum  of 
$5,000,  payable  to  the  bank's  order  on  demand,  and  dated,  respec- 
tively, February  24,  March  1,  5,  8,  14,  and  21,  1894.  These  not 
being  paid  on  demand,  the  bank  brought  suit  against  all  the  mem- 
bers of  the  firm  as  general  partners.  The  sworn  statement  of  claim 
avers:  (1)  That  plaintiff  accepted  the  notes  on  the  faith  of  the  writ- 
ing signed  by  all  the  members  of  the  partnership  and  recorded  in  the 
office  for  the  recording  of  deeds  the  30th  of  December,  1893;  (2)  that 
said  writing  set  forth  that  the  original  contribution  of  $200,000  in 
cash  and  merchandise  by  the  special  partners  "  remains  unimpaired 
and  undiminished  as  their  contribution  to  the  present  renewal ;  " 
(3)  that  at  the  time  said  writing  was  made  and  put  of  record  the 
entire  original  capital  contributed  by  the  special  partners  had  been 
consumed  and  lost  in  the  business,  and  the  partnership  of  Haines  & 
Co.  was  insolvent;  (4)  that  the  statement  that  the  same  remained 
unimpaired  and  undiminished  was  false  in  fact.  The  plaintiff  there- 
fore averred  liability  of  each  and  all  of  the  members  of  the  firm  as 
general  partners.  To  this  the  defendant  William  Whitaker  made 
affidavit  of  defence,  setting  out  that  on  the  last  renewal  of  the  part- 
nership, on  30th  of  December,  1893,  all  the  members  joined  in  a 
petition  to  the  Court  of  Common  Pleas  for  the  appointment  of  an 
appraiser  of  the  assets  of  the  proposed  renewed  partnership,  and  the 


5  "•]  RENEWAL   CEKTTFICA.TES. 

appointment  was  made;  that  the  appraiser  under  oath   reported  be 
had  examined  carefully  and  appraised  the  goods  and  merchan 
the  proposed  partnership,  and  that  these  included  the  original  con- 
tributions of  Whitaker  and  Bacon,  the  special  partners,  and  the  value 

of  the  .same  as  merchandise  was  $200,1 ;  that  the  partnership  had 

other  merchandise,  accounts,  and  cash  more  than  Bufficienl  to  pay  its 
debts;  further,  that  the  $200,000  y^f  merchandise  appraised  as  the 
original  contribution  of  capital  by  the  special  partners  was  s<  I  a 
as  such,  and  transferred  to  the  new  partnership.  The  defendant  then 
avers  on  this  preliminay  statement  o\'  facts:  |  l  I  Thai  he,  at  the  time 
of  the  renewal,  believed  the  statement  and  affidavit  of  the  appraiser 
to  be  true,  and  that  he  (defendant)  had  done  all  thai  was  required  of 
him  as  a  special  partner.  (2)  That  he  is  informed  and  believes  the 
notes  were  not  accepted  by  plaintiff  on  the  faith  of  the  statem* 
that  the  notes  in  suit  are  renewals  of  notes  given  for  partnership 
debts  of  1893,  and  are  but  a  continuation  of  the  evidence  of  indebted" 
ness  of  the  older  partnership  before  the  articles  of  December,  1898, 
for  renewal  were  entered  into.  (3)  That  the  notes  sued  on  were 
given  without  his  knowledge  or  consent,  and  plaintiff  knew,  when  it 
accepted  them,  the  general  partners  had  no  authority  to  impose  lia- 
bility on  him  except  as  special  partner.  (4)  That  be  lias  do  personal 
knowledge  as  to  any  misstatements  of  fact  in  the  articles  of  1898; 
that  he  believed  the  statements  of  the  general  partners  and  i<\'  the 
appraiser,  whose  duty  it  was  to  know,  to  be  true.  On  the  record 
thus  made  up  plaintiff  took  a  rule  for  judgment  for  want  of  sufficient 
affidavit  of  defence.  After  argument,  the  court  below,  in  a  carefully 
considered  opinion,  made  the  rule  absolute,  and  defendant  appeals. 

The  averment  in  plaintiff's  statement  that  when  the  last  renewal 
was  signed  the  entire  capital  stock  of  the  special  partners  had  been 
lost  in  the  business  of  Haines  &  Co.,  and  the  partnership  was  largely 
insolvent,  is  not  denied  in  the  affidavit  of  defence.  It  is  denied  by 
defendant  there  was  any  intentional  misstatement  on  his  part.  It 
must,  therefore,  be  here  taken  as  true  that,  when  all  the  members 
joined  in  the  representation  on  the  public  records  that  the  $200,000 
capital  remained  unimpaired  and  undiminished,  thai  statement  was 
untrue  in  fact.  The  question,  then,  is.  what  effect,  if  any,  does  an 
unintentional  misrepresentation  of  this  character  have  on  the  liability 
of  defendant  as  a  member  of  the  partnership?  A>  already  quoted, 
the  eleventh  section  of  the  act  provides  for  the  attesting  and  record' 
ing  of  articles  of  renewal,  and  public  notice  of  the  same,  under  the 
same  formalities  as  are  required  in  the  original  formation  of  the 
partnership.  The  penalty  of  a  failure  to  comply  with  the  directions 
of  the  act  as  to  the  first  organization  is  found  in  the  eighth  section, 

as  follows:  "And  if  any  false  statement  be  made  in  such  certificate 
or  affidavit,  all  the  persons  interested  in  such  partnership  shall  he 
liable  for  all  engagements  thereof,  as  general  partners."  This  court 
held,  in  Haddock  v.  Manuf'g  Corp.,   109  Pa.  St.  872,  that:  "This 

12 


65S  LIMITED    PARTNERSHIPS.  [CHAP.  IX. 

evidently  means  that  the  affidavit  shall  give  as  full  information  upon 
the  renewal  as  upon  the  original  formation  of  the  limited  partnership. 
A  mere  formal  affidavit,  setting  forth  the  renewal  only,  would  not 
give  creditors  any  valuable  information  as  to  the  condition  of  the 
firm,  and  the  object  of  the  act  was  to  provide  this  notice."  Andrews 
v.  Schott,  10  Pa.  St.  47,  is  to  the  same  effect,  although  in  this  last 
case  there  had  been  the  introduction  of  a  new  partner,  and  the 
decision  was  rested  on  the  ground  that  there  was  the  formation  of 
a  new  partnership  instead  of  the  renewal  of  the  old  one.  But  the 
point  is  settled  by  a  deliberately  considered  judgment  in  Haddock  v. 
Manuf'g  Corp.,  supra,  that  the  requirements  of  the  act  as  to  state- 
ment and  affidavit  for  renewal  are  as  rigid  as  in  those  for  the  original 
formation  of  the  partnership.  The  object  of  the  act  was  to  open  a 
venture  to  capital  with  the  protection  or  advantage  of  restricted  lia- 
bility, but  upon  a  condition  that  the  public  should  have  full  means 
of  knowledge  as  to  the  amount  and  character  of  the  venture,  and 
thereby  be  enabled  to  form  a  judgment  as  to  how  far  the  partnership 
was  worthy  of  credit.  Here  the  record  contained  the  joint  represen- 
tation to  the  public  of  all  the  partners  jn  December,  1893,  that  the 
original  $200,000  remained  unimpaired  and  undiminished,  when, 
through  business  losses  before  that  date,  it  had  in  large  part  disap- 
peared. "We  do  not  consider  it  material  that,  as  concerns  this 
defendant,  the  misrepresentation  was  not  intentional;  that  concerns 
his  ease  of  conscience,  but  it  neither  restricts  his  liability  nor  affects 
the  rights  of  creditors.  The  act  seems  to  be  carefully  silent  as  to 
any  modification  of  the  language  which  operates  to  inflict  the  penalty. 
It  does  not  say  "  wilfully,  knowingly,  intentionally  false  statement," 
but  simply,  "  if  any  false  statement  be  made,"  then  all  persons  inter- 
ested shall  be  liable  as  general  partners.  As  to  the  nature  of  such 
a  misstatement  as  this,  it  is  only  necessary  to  recur  to  Haddock  v. 
Manuf'g  Corp.,  supra:  "  When  a  special  partnership  is  continued  or 
renewed,  it  must  be  in  the  same  condition,  so  far  as  the  special  cap- 
ital is  concerned,  as  when  it  was  originally  formed.  Such  capital 
must  be  unimpaired.  It  must  be  in  such  condition  as  to  be  available 
for  creditors,  and  it  is  the  duty  of  the  general  partner  to  furnish  this 
information  in  his  affidavit.  If  this  duty  is  neglected,  the  partner- 
ship becomes  general,  and  the  special  partner  has  no  immunity." 
Cleai'ly,  there  was  a  false  statement  here  of  a  most  material  fact,  and 
although  not  known  to  defendant  when  he  joined  in  the  subscription 
to  the  articles,  he  cannot,  for  that  reason,  claim  immunity  as  a  special 
partner.  It  was  his  legal  duty  to  know  the  truth  or  falsity  of  state- 
ments subscribed  to  by  him,  and  placed  on  the  public  records;  and, 
although  ignorance  of  its  falsity  may  exempt  from  the  imputation 
of  moral  turpitude,  the  statute  does  not  exempt  him  from  legal 
responsibility. 

The  distinction  drawn  by  the  learned  counsel  for  appellant  between 
impaired  and  unimpaired  capital  of  business  partnerships  is  without 


§  7.]  RENEWAL    CERTIFICATE?. 

weight  in  the  interpretation  of  this  statute.     The  object   i>  to  give 
information  to  the  creditor  of  the  financial  standing  of  the  partner- 
ship when  it  invites  business.     Its  credit  depends  on  its  ability 
pay.     Its  ability  to  pay  depends  on  the  value  of  assets   it  ran  law- 
fully appropriate  in  payment.     This  partnership  did  have,  in  Decem- 
ber, 1891,  $200,000  capital  in  money  and  merchandise,  to  which  the 
creditor  of  that  term  could  look   for  payment  of  his  debts.      But  in 
December,  1893,  the  partnership  was  wholly  insolvent.     All 
were  insufficient   to   discharge    its   indebtedness.     It   bad    I       ,000 
worth  of  merchandise  on  hand,  which  was  sel  aside,  and  called  unim- 
paired  and  undiminished   capital   of  the   special   partners.      But    to 
whom  did   this    merchandise    in   equity   belong?      Certainly   to    ti 
who  had  given  credit  on  the  strength  of   it.  and  it  was  under  a  pl< 
both  legal  and  moral  to  them  for  their  debts.     All   that  was  Dei 
to  enforce  forfeiture  of  the  pledge  was  a  judgment  ripe  for  execu- 
tion.    True,  the  mere  physical  possession  of  the  merchandise  was  in 
the  partnership,  but  the  special  partners  could  not  have  withdrawn 
from  the  insolvent  firm   $200,000   in  cash,  and   held  it  against   the 
creditors.      How  could  the  partners,  all  consenting,  lawfully  put  aside 
for  the  same  partners  $200,000  worth  of  merchandise?     Yet   it  was 
represented  by  the  statement  this  $200,000  was  subject  to  the  claims 
of  future  creditors,  as  if  the  partnership  had   been  then  formed,  and 
the  capital  first  contributed,  when  the  fact  was.  after  having  under- 
gone the  perils  of  two  years*  business,  it  was  impaired   to  the  amount 
that  the  debts  of  the  insolvent  firm   exceeded   the  assets.     Of  this 
important   fact   the   statement   contained    no   hint     As    is    Baid    in 
Vanhorn  v.  Corcoran,  127  Pa.  St  255,  where  the  assets  of  a  partner- 
ship largely  indebted  were  turned  over  as  a  contribution  of  capital  to 
a  limited  partnership:  "The  whole  of  it,   in   equity,   was  liable   to 
creditors,  and  could  not  be  withdrawn  from  them  without  fraud  until 
the  last  dollar  of  the  debts  of  the  firm  was  paid.     So  that,  instead  of 
property,  the  defendants  contributed  a  mere  equity,  to  wit.  whatever 
was  left  of  the  assets  of  the  firm  after  payment  of  its  debts." 

As  to  the  notes  sued  on  being  given  for  note-  issued  before  the 
filing  of  the  renewal  certificate,  the  evidence  of  the  old  debt  was 
extinguished,  and  a  new  security  given.  The  general  partners  had 
an  implied  right  to  negotiate  for  extension  of  time  on  matured  not< 
and  give  those  of  the  new  partnership,  which  last  was  in  possession 
of  all  the  assets  of  the  old. 

It  is  argued  by  appellant  the  effect  of  sustaining  the  judgment  of 
the  court  below  here  will  be  to  discourage  the  formation  and  r,  newal 
of  limited  partnerships,  because  capitalists  could  not  longer  in 
their  money  prudently  in  such  business  enterprises.  We  have  no 
fears  of  such  consequence.  For  almosl  Bixty  years  limited  partner 
ships  have  multiplied  and  prospered  in  this  commonwealth,  under 
an  unbroken  line  of  decisions,  which  have  uniformly  exacted  strict 

adherence  to   all    the   material    requirements   of   the   law.      The   credit 


660  LIMITED   PARTNERSHIPS.  [CHAP.  IX. 

of  such  associations  stands  deservedly  high  in  public  estimation, 
because  those  who  trust  them  feel  they  can  rely  on  the  truthfulness 
of  their  public  statements.  This  confidence  can  only  be  maintained 
by  a  rigid  judicial  enforcement  of  those  requirements,  which  the 
legislature  plainly  deemed  important.  No  prudent  capitalist  will 
refrain  from  investment  in  such  enterprises  because  compelled  to  a 
strict  observance  of  the  truth  with  regard  to  material  facts.  No 
prudent  creditor  will  trust  them  if  this  measure  of  business  honesty 
be  not  exacted. 

We  see  no  error  in  the  judgment,  and  it  is  therefore  affirmed. 


HOGAN  v.    HADZSITS  et  al. 

71  N.  W.  (Mich.)  1092.     1897. 

Moore,  J.  February  4,  1888,  the  firm  of  George  Hadzsits  &  Co. 
was  organized.  Herman  Rohns  was  the  special  partner.  The  other 
two  defendants  were  the  general  partners.  The  special  partner  con- 
tributed to  the  capital  stock  of  said  firm  the  sum  of  $10,000  in  cash. 
The  partnership  was  to  terminate  on  the  3d  day  of  February,  1892. 
There  is  no  question  raised  as  to  these  papers  being  properly  exe- 
cuted to  create  a  limited  partnership.  At  the  expiration  of  this  part- 
nership, like  articles  of  special  partnership  were  signed,  reciting  that 
the  partnership  was  to  commence  on  the  4th  day  of  February,  1892, 
and  to  terminate  February  3,  1896.  The  articles  recited  that  "  said 
Herman  Rohns,  special  partner  as  aforesaid,  has  contributed  to  the 
capital  stock  of  said  firm  the  sum  of  ten  thousand  dollars."  These 
articles  of  co-partnership  were  acknowledged  February  6,  1892,  and 
on  the  same  day  there  was  attached  to  said  articles  an  affidavit  of 
the  general  partner  Hadzsits,  who  swore  "  that  the  said  Herman 
Rohns,  who  is  therein  named  as  special  partner,  has  actually,  in  good 
faith,  contributed  in  cash  to  the  capital  stock  of  said  business  the 
sum  of  ten  thousand  dollars."  The  record  shows  that  Mr.  Rohns  did 
not  contribute  any  cash  to  the  capital  stock  of  said  partnership  after 
February  4,  1888.  It  also  shows  that  February  6,  1892,  the  excess 
of  the  assets  of  the  firm  over  its  liabilities  to  persons  other  than  the 
partners  was  upwards  of  $34,000,  and  exclusive  of  all  liabilities, 
including  the  liability  to  the  partners,  was  upwards  of  $4,000.  The 
contribution  of  Mr.  Rohns  to  the  firm  in  February,  1892,  was  his 
interest  then  in  the  firm.  The  record  shows  this  was  worth  upwards 
of  $10,000.  After  February,  1892,  Mr.  Rohns  drew  out  of  the  firm, 
at  intervals,  sums  of  money  which  amounted,  during  the  four  years 
the  partnership  continued  to  exist,  to  $3,850,  under  an  arrangement 
between  the  partuers  by  which  he  was  to  be  allowed  10  per  cent  on 
the  amount  of  his  investment  as  interest.     On  the  trial  the  jury  found, 


§  "•]  RENEWAL   CERTIFICATES 

in  answer  to  a  special  question  submitted  to  them,  that  the  proi 
of  George  Hadzsits  &  Co.  was  sufficient  on  the  6th  day  of  February, 
L896,  to  pay  the  partnership  d<  bts.     A.1  the  expiration  of  th< 
partnership,  in  February,  L896,  the  finn  went  out  of  business,  !>:. 
given  chattel  mortgageson  all  its  property.     These  chattel  mo 
were  foreclosed.     The  property   did   nol    bring    enough   to   pay   the 
•cured  creditors.     It  was    the  claim  of  the  defendants   that  the 
property  was  sacrificed  at  the  chattel-mo  sale.     The  plaintiff 

has  a  claim  of  about  $1,800  against  the  company,  for  which  he  .- 
to  hold  the  special  partner. 

There  are  two  questions  involved.     First     Does  the  fact  that  Mr. 

Hadzsits  stated  in  his   affidavit   made   February   6,    1892,  thai    Mr. 

Rohns  had  contributed  in  cash  to  the  capital  stock  $10, when  the 

cash  was  in  fact  contributed  in  1888,  make  Mr.  Rohns  a  general 
partner?  Second.  Was  the  withdrawal  from  the  firm  by  Mr.  Rohns 
of  sums  of  money  as  interest  on  his  investment  Buch  a  withdrawal  of 
the  capital  stock  as  to  make  Mr.  Rohns  liable  to  the  plaintiff  for  the 
amount  of  his  claim,  to  the  extent  of  the  amount  bo  withdrawn? 

As  to  the  first  question,  the  trial  judge  charged  the  jury  that 
"under  the  evidence  in  the  case,  and  under  the  certificate  filed  and 
signed  by  the  partners,  that  the  amount  of  capital  stock  stated  in  the 
certificate  was  ten  thousand  dollars,  which  was  put  in  by  Mr.  Ro 
either  in  money,  or  in  something  equivalent  to  money,  is  a  sub- 
stantial compliance  with  the  law."  As  to  the  Becond  question,  he 
instructed  the  jury  that  the  capital  stock  of  the  compauy  musl  be 
kept  intact,  and  left  it  to  the  jury  to  say  whether  it  had  been  impaired 
by  the  withdrawal  of  the  money  from  the  firm  by  Mr.  Rohns.  The 
appellant  insists  that  the  disposition  of  each  of  these  questions  by 
the  trial  judge  is  error.  It  is  said  on  the  par!  of  the  appellanl  that: 
"How.  Ann.  St.  ^  2344,  requires  the  execution  by  all  the  members 
of  a  special  partnership  of  a  certificate  which  shall  slate,  among  other 
things,  '  the  amount  of  the  capital  stock  which  each  special  partner 
shall  have  contributed  to  the  common  stock.'  Section  2346  requires 
that  the  certificate  shall  be  filed  with  tin-  clerk  of  the  county  in  which 
the  principal  place  of  the  partnership  is  to  lie  Bituated.  Section  2348 
provides:  '  That  at  the  time  of  filing  the  certificate  and  the  acknowl- 
edgment, an  affidavit  of  one  or  more  ..f  the  general  partners  shall  be 
filed  in  the  county  clerk's  office,  slating  that  the  amount  in  money,  or 
other  property  at  cash  value,  specified  in  the  certificate  to  have  I 
contributed  by  each  of  the  special  partners  to  the  common  Btock,  has 
been  actually,  ami  in  good  faith,  contributed  and  applied  to  the 
same.'  Section  2349  provides:  '  No  such  partnership  shall  bedeemed 
to  have  been  formed  until  such  certificate,  acknowledgment,  and 
affidavit  shall  have  been  Bled  as  above  directed;  and  if  an)  i 
statement  be  made  in  such  certificate  or  affidavit,  all  the  pens 
interested  in  such  partnership  shall  be  liable  for  all  the  engagements 
thereof  as  general  partm  It  is  said  the  testimony  shows  that,  to 


662  LIMITED    PAETNEKSHIPS.  [CHAP.  IX. 

the  capital  stock  of  the  partnership  which  was  in  existence  when 
plaintiff's  assignors  sold  the  goods  on  which  this  action  is  based,  the 
special  partner,  Rohns,  had  not  in  good  faith  contributed  in  cash  the 
sum  of  ten  thousand  dollars.  He  contributed  his  interest  in  the  part- 
nership which  had  expired  on  February  8,  1892,  —  an  interest  the 
value  of  which  was  entirely  problematical.  It  might  or  might  not 
have  been  of  substantial  value,  and,  whether  it  was  or  not,  could 
only  have  been  ascertained  after  payment  of  the  partnership  debts, 
and  a  sale  of  the  excess  of  the  assets,  if  any  excess  there  was."  It 
is  the  contention  that  the  statement  made  in  the  affidavit  that  Rohns 
had  contributed  in  cash  to  the  capital  stock  of  the  compauy  $10,000 
was  not  true;  that  the  statute  must  be  strictly  followed,  and  the 
statutory  result  of  the  false  statement  is  that  Rohns  is  liable  as  a 
general  partner  for  all  the  partnership  engagements;  citing  Bates, 
Lim.  Partn.  56,  60,  61;  Pierce  a.  Bryant,  5  Allen,  91;  Haviland  v. 
Chace,  39  Barb.  283;  Haggerty  v.  Foster,  103  Mass.  17;  Richardson 
v.  Hogg,  38  Pa.  St.  153;  Eliot  v.  Himrod,  108  Pa.  St.  578;  Vanhorn 
v.  Corcoran,  127  Pa.  St.  265;  Haslet  v.  Kent,  160  Pa.  St.  85; 
Durant  v.  Abendroth,  69  N.  Y.  151;  Bank  v.  Huber,  75  Hun,  80; 
26  N.  Y.  Supp.  961.  These  cases  undoubtedly  hold  that  contribu- 
tions of  United  States  bonds,  or  of  promissory  notes  or  acceptances, 
or  of  a  stock  of  goods,  or  the  property  or  assets  of  another  partner- 
ship, are  not  to  be  regarded  as  payments  in  cash,  in  the  formation  of 
limited  partnerships.  Many  of  these  decisions  were  in  States  which 
require  the  contribution  to  the  capital  stock  made  by  the  special 
partner  to  be  made  in  cash,  while  in  our  State  the  contribution  may 
be  made  in  cash,  or  other  property  at  cash  value.  We  do  not  think, 
however,  a  fair  interpretation  of  this  record  will  show  that  what  was 
attempted  to  be  done,  or  what  was  in  fact  done,  was  the  creation  of 
an  original  limited  partnership.  It  was  rather  the  renewal  for  another 
period  of  four  years  of  a  limited  partnership  then  in  existence;  con- 
tinuing the  same  business  with  the  same  partners  and  with  the  same 
assets  which  belonged  to  the  firm  at  the  expiration  of  the  term  for 
which  the  original  articles  of  partnership  provided.  Section  2352, 
How.  Ann.  St.,  provides  for  the  renewal  or  continuance  of  such 
partnerships,  and  that  a  "  certificate  shall  be  made,  acknowledged, 
recorded,  and  published  in  the  like  manner  as  is  provided  in  this 
chapter  for  the  formation  of  limited  partnerships,"  etc.  It  is  unfor- 
tunate, perhaps,  that  the  statute  does  not  provide  just  what  this  cer- 
tificate shall  contain.  In  Bates,  Lim.  Partn.  §  122,  it  is  said:  "  Con- 
sidering how  utterly  inadequate  in  its  instructions  this  section  of  the 
statute  is  [he  is  discussing  statutes  of  similar  import  to  ours],  it  is 
astonishing  that  there  have  been  no  more  decisions  upon  it.  The 
statute  requires  the  renewal  to  be  certified  as  in  the  original  forma- 
tion. As  the  certificate  of  formation  certified  a  cash  contribution,  or 
in  specific  articles  at  a  valuation,  it  is  obvious  that  a  literal  compli- 
ance with  the  statute  is  impossible,  and  no  instructions  are  given  to 


§  7.]  RENEWAL    CEKTIFICATI 

guide  us."     If  there  cannot  be  a  literal  compliance  with  tl 

is  it  just  to  say  that  if  there  has  a  substantial  compliance  with 

the  statute,  and  an  attempt,  in  good  faith,  to  comply  with  it>  u  i 
the  special  partner  shall  be  made  a  general  one  because  the  imp  - 
was  not  done?     "The  difficulty  is  to  know  how  minute  must  be  the 
information  to  be  contained  in  these  documents.     A  ^<<\u-_:  busii 

is  often  not  susceptible  of  exact  estimate  as  to  its  own  stand ii 
capital,  etc.     Its  standing  of  one  day  is  not  its  Btanding  of  the  n,  \t 
day.  not  only  because  new  contracts  may  be  made  and  old  m- 
pleted.  and  new  debtors  and  credil            eated,  but   because  the  ebb 
and  tlow  of  markets  make  the  value  of  the  Btock  a  constantly  fluctuat- 
ing amount;   and  unseen  changes  in  the  ability  and  Bolvency  of   tl 
indebted  to  the  firm  may  affect  it  to  a  high  degree  without  any  ol  tin- 
partners  being  at  all  aware  of  the  change.      Moreover,  the  capital, 
which   originally  was    cash,  is    no    longer  so.      Ii    has   now  become  a 
stock  of  goods  or  improvements  or  property.      It   i>  perfectly  plain 
that  the  renewal  certificate  cannot  state  that  there  i>  a  present  <-a>h 
capital,  or   its   accurate   value.      It    would    therefore    seem    that    the 
statute  should  be  construed  as  allowing  a  renewal  regardless  of  the 
condition  of  the  association:   that   the  statutory   certificate,    record, 
affidavit,    and    publication    need    contain    no    new    matter    not    in 
original  certificate;    that   the   partnership   is   renewed   for  a   certain 
further  time;  and  that  any  other  matter  analogous  to  there-record- 
ing of  a  mortgage  of  personalty  is  practically  a  re-statement  of  the 
original    facts.      Such,  judging   from   the   statements   of    fact.-    in    the 
cases  of  renewals,  has  been  the  practice."     Bates,  Lim.  Partn.  i  127. 
Doubtless  this  was  the  view  held  by  the    person  who  prepared  the  • 
tificate  and  affidavit   for  the   purpose  of   renewing  the   partnership. 
We  do  not  think  it  unreasonable  to  say  that    the  statute  com,  nip'; 
that  the  renewal  certificate  and  affidavit  are  to  be  read  in  connection 
with  the  original  certificate  ami  affidavit.      If  this  is  done.  n<>  one  can 
be  misled.     It  would  appear  from  such  a  reading   that   the  limited 
partnership  was  created  in   1***;  that  at   that  time  .Mr.  Rohns  con- 
tributed in  cash  to  the  capital  stock  of  the  company  $10, ».  and  that 

four  years  later  the  limited  partnership  was  continued  for  another 
four  years.  We  have  not  overlooked  the  decision  of  Haddock  v. 
Manufacturing  Corp.,  1<»'.>  Pa.  St.  372,  which  reads:    "  When  a  special 

partnership  is  continued  or  renewed,  it   must  be  in  the  same  c <li- 

tion,  so  far  as  the  special  capital  is  concerned,  a-  when  it  was  - 
inally  formed.  Such  capital  must  be  unimpaired.  It  inibl  be  in 
such  condition  as  to  be  available  for  creditors,  and  it  is  the  dutj  of 
the  general  partner  to  furnish  this  information  in  his  affidavit  It 
this  duty  is  neglected,  the  partnership  becomes  general,  ami  the 
special  partner  has  no  immunity."  The  Pennsylvania  Court  held 
substantially  the  same  doctrine  in  relation  to  limited  partnership 
associations,  but  this  court  declined  to  follow  thai  doctrine  in  the 
recent  cases  of  Staver  &   A.bbot1    Maim'       I       u.  Dial,.   (Mich.),  69 


664  LIMITED    PARTNERSHIPS.  [CHAP.  IX. 

N.  W.  508,  and  Rouse  v.  Cycle  Co.,  Id.  511.  We  think  such  a  con- 
struction reads  into  the  statute  provisions  it  does  not  contain.  The 
court  did  not  err  in  his  disposition  of  the  first  question  raised. 

Counsel  for  appellant  insist  that  under  the  provisions  of  section 
2355' the  special  partner  is  made  liable,  to  the  extent  of  any  unpaid 
debts,  for  all  sums  withdrawn  from  the  firm,  and  that  as  the  record 
shows  the  plaintiff  is  unpaid,  and  the  special  partner  withdrew  more 
than  the  amount  of  the  plaintiff's  claim,  the  judge  should  have 
directed  a  verdict  in  his  favor.  The  statute  provides  for  liability 
for  interest  or  profits  withdrawn  only  in  case  the  withdrawal  reduces 
the  capital  stock  below  the  sum  stated  in  the  certificate,  or  if  at  any 
time  during  the  continuance,  or  at  the  termination  of  the  partnership, 
the  property  or  assets  shall  not  be  sufficient  to  pay  the  partnership 
debts.  Both  of  these  propositions  were  submitted  to  the  jury,  who 
found  the  capital  stock  had  not  been  impaired,  and  that  at  the  ter- 
mination of  the  partnership  there  were  assets  sufficient  to  pay  the 

partnership  debts. 

The  judgment  is  affirmed. 


§  8.     Ante-Partnership  Negotiations. 

HINDS   et  al.    v.   BATTIN   et  al. 

163  Pa.  St.  487 :  30  At.  164.     1894. 

McCollum,  J.  All  the  equities  of  the  case  are  with  the  defend- 
ants, and  in  accord  with  the  judgment  appealed  from.  In  the  nego- 
tiations which  resulted  in  the  contract  under  which  the  goods  were 
delivered  the  defendants  were  not  acting  for  themselves  or  a  general 
partnership,  but  for  the  Scranton  Match  Company,  Limited,  an  asso- 
ciation organized  under  the  Act  of  June  2,  1874,  and  its  supplements. 
The  plaintiffs,  through  their  agent,  knew  the  signature  of  the  associ- 
ation, what  had  been  done  in  the  way  of  organizing  it,  what  its  cap- 
ital was,  and  the  measure  of  the  liability  of  its  members.  The 
statutes  under  which  it  was  formed  and  the  articles  on  which  it  was 
founded  were  read  and  explained  to  him,  and  his  knowledge  was 
theirs.  With  this  information,  the  correctness  of  which  is  not  dis- 
puted, they  dealt  with  and  furnished  their  goods  to  and  on  the  credit 
of  the  association,  and  not  until  it  passed  into  the  hands  of  liquidat- 
ing trustees  in  consequence  of  losses  in  business  and  the  destruction 
of  its  plant  by  fire  did  they  claim  that  the  defendants,  as  individuals 
or  general  partners,  were  liable  for  the  goods  so  sold  and  delivered. 
It  was  shown  on  the  trial,  and  found  by  the  refei-ee,  that  the  defend- 
ants paid  their  subscriptions  to  the  capital  stock  of  the  association, 
and  it  is  not  alleged  that  its  insolvency  was  the  result  of  fraud  or 
mismanagement.     The  plaintiffs'  contention  is,  therefore,    not  only 


§  8.]  A.NTE-PABTNERSHIP   NEGOTIATION 

opposed  to  the  terms  of  the  contract  and  the  understanding  1 
them  and  the  defendants  when  it  was  made  and  thi  -  were  fur- 

nished under  it,  but  to  the  equities  <>f  the  case.     [1  is  a  content 
based  upon  a  technicality,  which  depends  «>n  their  construction  <>f  the 
Act  of  1874.     It  appears  that  the  articles  eiation  were  not 

recorded  when  the  order  of  December  1  I.  1886,  was  made,  <>r  when  it 
w:i--  changed,  on  the  29th  of  March.  1887;  but  it   i  ad  dis] 

that   they   were   duly    recorded    Bome    time    before    th< 
delivered,  and  before  the  contract   under  which   the  deliveries   w< 
made  became  absolute  and  binding  upon  the  match  company  bv  its 
approval   of  the   samples.  .  .  .  These  orders  were  mere  pi 
subject  to  the  approval  of  the  plaintiffs  and  to  the  approval  of  the 
match  company  of  the  proofs  and  samples  of  the  goods.     Strictly 
speaking,  there  was  no  contract  until   these  approvals  w<  i<   giv<  i  . 
they  were  in  the  nature  of  conditions  precedent  l<>  i;-  existence.     The 
original  orders  were  changed  on  the  29th  of  March  by  tile  maker  and 
approvers  of  them,  and  if  at  any  time  there  was  a  binding  and  abso- 
lute contract  in  conformity  with  them   it  was  avoided  by  the  agree- 
ment then   made.     Whether   the   orders    recognized   and  acted    upon 
after  this  agreement  are  called  new  or  modified  orders,  is  of  uo  con- 
sequence.    Surely  the  approval  of  them,  and  the  samples  furnished 
under  them,  constituted    a   contract    inconsistent    with   any   contract 
arising  from  the  approval  of  the  original  orders,  and  the  proofs  sub- 
mitted in  pursuance  of  them.     The  samples  furnished  by  the  plaint  i 
under  the  new  or  modified  orders  were  approved  by  the  association 
on  the  2Gth  of  May,  1887,  ami  thenceforth  there  was  an  absolute  con- 
tract between  the  parties  on  the  basis  of  these  orders,  by  which  alone 
their  rights  and  obligations  in  reaped  t<-  the  subject  matter  of  it  were 
measured.     It  was  a  contract  between  the  plaintiffs  and  the  Scranton 
Match  Company,  Limited.     Did  the  failure  of  the  company  t--  record 
the  articles  before  the  commencement  of  the  negotiations  which  cul- 
minated in  the  contract  after  they  were  recorded  render  it-  members 
liable  as  individuals  or  general  partners  for  the  goods  delivered  to 
it?     We  think  not.     It  is  the  status  of  the  association  when  the  con- 
tract was  made  that  must  be  considered  in  answering  this  question, 
and  it  is  admitted  that  when  it  approved  the  samples  furnished  under 
the  new  orders  it  was  qualified  to  enter  into  contracts  in  connection 
with  and  for  the  proper  prosecution  «>f  the  business  for  which  it  was 
organized.     These  view-,  are  in  harmony  with  the  [earned  refer 
findings  of   fact   and  conclusions  of  law.     We  have  not  deemed  it 
necessary  to  notice  seriatim  the  numerous  specifications  of  »  nor  tiled 
in  the  case,  although  we  have  examined  and  considered  all  of  them, 
together  with  the  argument  of  the  learned  counsel  in  support  of  them, 
[t  is  sufficient  to  say  that  we  discover  nothing  in  the  specifications 
which,  in  our  opinion,  calls  for  <»•  would  justify  a  reversal  of  the 

judgment. 

They  are  accordingly  overruled,  and  the  judgmenl  is  affirmed. 


666  LIMITED    PARTNERSHIPS.  [CHAP.  IX. 


§  9.     Partnership  Capital. 

BRADBURY   et  al.    v.    SMITH. 
21  Me.  117.     1842. 

Trespass  by  the  plaintiffs,  Bradbury  and  Coffin,  as  co-partners 
against  the  defendant,  a  sheriff,  for  taking  and  carrying  away  certain 
goods  as  firm  property  under  a  process  against  Bradbury,  one  of  the 
partners,  to  satisfy  a  debt  due  from  him  only.  The  entire  capital 
had  been  contributed  by  the  special  partner,  Coffin.  A  verdict  was 
taken  for  the  plaintiffs,  which  was  to  be  set  aside,  if  this  court  held 
that  the  action  could  not  be  maintained. 

Codman  <&  Fox,  for  the  defendant. 

F.  0.  J.  Smith,  for  the  plaintiffs. 

Shepley,  J.  Whether  a  partnership  includes  the  capital  stock,  or 
is  limited  to  the  profit  and  loss,  must  be  determined  from  the  agree- 
ment and  intention  of  the  parties.  In  this  case  the  agreement  signed 
by  the  plaintiffs  declares,  that  the  "  special  partner  has  contributed 
$1,500  as  capital  to  the  common  stock."  And  there  can  be  no  doubt 
that  it  was  their  intention  to  form  a  limited  partnership  under  the 
provision  of  the  statute  of  1836,  c.  211.  If  it  be  admitted  that  a 
general  partnership  was  not  created  by  a  failure  to  comply  with  the 
provisions  of  the  seventh  section  of  the  act,  which  requires  that  "  the 
names  of  the  general  partners  only  shall  be  inserted  without  the  addi- 
tion of  the  word  company  or  any  other  general  term ; "  the  act  would 
still  require,  that  the  special  partner  should  contribute  a  sum  in  cash, 
and  that  it  would  become  a  portion  of  the  capital  stock  of  the  partner- 
ship. The  act  provides,  that "  the  general  partners  only  shall  transact 
business,"  and  the  goods  must  be  purchased  by  them.  The  contracts 
and  bills  of  purchase  would  be  between  the  seller  and  the  partnership 
as  the  purchaser,  and  the  goods  would  become  the  property  of  the 
partnership.  And  this  would  but  carry  into  effect  the  agreement  and 
intention  of  the  parties,  the  partnership  becoming  a  debtor  to  the 
special  partner  for  the  amount  of  cash  by  him  contributed.  A  loss 
of  the  goods  in  the  shop  by  fire,  or  otherwise,  would  not  have  fallen 
exclusively  upon  the  special  partner  as  the  sole  owner,  but  upon  the 
partnership.  Although  at  the  time  of  the  commencement  of  this  part- 
nership the  capital  stock  was  all  contributed  by  the  special  partner, 
the  general  partner  would  afterward  be  daily  contributing  to  it  by  his 
time  and  attention  to  the  business.  It  cannot  therefore  be  correct  to 
assert,  that  the  capital  stock  at  the  time  of  the  attachment,  after 
several  months'  continuance  of  the  partnership,  remained  as  the  sole 
contribution  of  the  special  partner.  It  might  have  happened,  by  a 
rise  in  the  value  of  the  goods  first  purchased,  and  by  large  profits  on 
the  sales  of  these  and  of  other  goods  subsequently  purchased,  that  the 
capital  would  have  been  more  than  doubled  during  the  two  years  pro- 


§  10.]  PREFERENCES   FORBIDD] 

vided  for  its  continuance.     And  as  the  special  partner  ■ 

as  profits  a  sum  only  equal  to  the  legal  interest  "ii  the  monej 

vanced,  the  general  partner  might  at  that  time  become  entitle 

larger  portion  of  the  capital  Btock.     There  i-<  n<»  i  «•  that  the 

goods  attached  were  a  part  of  those  originally  purchased  by  the  cash 
advanced  by  the  special  partner.     And  if  they  were  Dot,  they  must 
have  been  purchased  on  the  credit  of  the  partnership,  or  by  fo 
partly  accruing  from  the  services  of  the  general  partner  in  transacting 
the  business. 

"Whether  the  special  agreement,  or  the  intention  of  the  pai  it, 

or  the  legal  effect  of  their  acts,  be  considered,  the  result  is  th< 
that  the  goods  in  the  shop  must  be  regarded  as  the  property  of  the 
partnership.      And  it  has  been  already  decided  in  the  case  of  Dou« 
v.  Winslow,  2  App.  89,  that  such  goods  are  liable  to  be  attached  for 
a  separate  debt  of  one  of  the  partners. 

The  verdict  is  to  be  set  aside,  and  <■ 


§  10.     Preferences  Forbidden. 

CROUCH  v.   FIRST   NAT.    BANK   OF   CHICAGO   m  m. 

156  111.  342:  40  X.  E.  974.     IS 

Wilkin,  C.  J.     This  is  an  appeal  from  a  judgment  of  the  Appellate 
Court  of  the  First  District  affirming  a  decree  of  the  Circuit  (  ourl  of 
Cook  County  sustaining  a  demurrer  to  :i  bill   in  chancery.      The  bill 
was  tiled  by  appellant,  Chester  B.  Corbin,  in  behalf  of  himself  and 
all  other  creditors  of  the  limited  partnership  <>f  Bois,  Fay,  &  Conkey, 
against  William   A.  Bois,   Benjamin   15.    Fay.    Lucius   \\  .    Conkey, 
Julius  K.  Graves,  the  First  National  Bank  of  Chicago,  and  othi 
It  alleges  that  the  complainant  purchased  of  the  limited  partnership 
of  Bois.  Fay,  &  Conkey,  on  November  L5,  L882,  their  two  promissory 
notes,  dated  October  30,   L882,  due   in   90   days    and    1    months   from 
date,  one  for  $1,734.21,  and  the  other  for  $2,016.92,  both  payable  to 
the  order  of  the  makers,  and  indorsed  by  the  firm  name.      It  then 
up  the  organization  on  March  30,  L882,  of  a  limited  partnership  by 
Bois.  Fay.  and  Conkey.  with  Julius  K.  <.ra  a   special  partner, 

contributing  to  the  partnership  the  sum  of  $50,000,  to  continue  to 
March  30,  1887;  setting  oul  the  certificate  of  partnership,  acknowledg- 
ment, filing,  and  recording  the  same,  in  conformity  with  sections 
c.  84,  Rev-  St.  (2  Starr  &  C.  Ann.  St.  p.   1565);   also  the  filing  Of  :.i. 
affidavit  by  Benjamin  B.  Fay.  one  of  the  general  partners,  requ 
by  section'?  of  the  same  chapter,  the  affida\  it  being  copied  at  \en\ 
It  further  alleges  publication  of  the  terms  of  the  limited  partnership, 
and  that:  lt  Saving,  in  all  things,  complied  with  the  proi  isiona  of  the 


668  LIMITED    PARTNERSHIPS.  [CHAP.  IX. 

Limited  Partnership  Act,  William  A.  Bois,  Benjamin  B.  Fay,  and 
Lucius  W.  Conkey,  and  Julius  K.  Graves  as  a  special  partner,  con- 
stituted a  limited  partnership,  under  the  firm  name  of  Bois,  Fay,  & 
Conkey,"  and  thereupon,  on  March  30,  1882,  commenced  in  the  city 
of  Chicago  the  business  of  dealing  in  groceries  at  wholesale,  which 
it  continued  to  carry  on  under  its  firm  name  until  in  the  month 
of  January,  1883.  That  during  that  time  it  contracted  debts  and 
incurred  obligations  amounting  to  much  more  than  its  assets,  and 
being  insufficient  to  pay  more  than  50  cents  on  the  dollar  thereof. 
That  during  said  month  of  January,  and  for  several  months  prior,  it 
had  great  difficulty  in  meeting  its  debts;  and  to  pay  the  same  as  they 
matured,  and  conceal  the  actual  condition  of  its  affairs  and  its  insol- 
vency, it  borrowed  and  secured  large  sums  of  money  by  loans,  and 
discounts  of  its  commercial  paper.  That  on  or  about  December  2, 
L882,  said  Bois,  Fay,  Conkey,  and  Graves,  well  knowing  said  limited 
partnership  was  insolvent,  and  with  the  intent  to  hinder,  delay,  and 
defraud  such  of  the  creditors  of  said  limited  partnership  as  they  did 
not  intend  to  prefer,  and  in  contemplation  of  insolvency,  and  with 
intent  to  prefer  certain  of  their  creditors,  and  with  the  intent  to  evade 
the  provisions  of  the  said  act  under  which  said  limited  partnership 
was  organized,  pretended  to  dissolve  said  limited  partnership;  and 
for  that  purpose  they  caused  to  be  filed  on  or  about  December  20, 
1882,  a  paper  purporting  to  be  a  dissolution  of  said  partnership,  but 
that  said  paper  writing  was  ineffectual  for  the  purpose  of  effecting 
any  dissolution  of  said  limited  partnership,  and  was  a  mere  device 
contrived  by  said  Bois,  Fay,  Conkey,  and  Graves  to  evade  the  pro- 
visions of  said  Limited  Partnership  Act,  and  give  color  of  authority 
and  validity  to  the  acts  of  said  Fay  and  Conkey  in  the  execution  of 
judgment  notes,  and  confessions  of  judgments  thereafter  to  be  entered 
against  them.  That  after  said  pretended  dissolution  said  Fay  and 
Conkey  pretended  to  carry  on  said  business,  and  assumed  to  own  all 
the  assets  of  said  limited  partnership.  That  said  Bois  and  Graves 
pretended  to  release  and  convey  their  interest  in  the  limited  partner- 
ship assets  to  said  Fay  and  Conkey,  but  that  such  release  or  convey- 
ance thus  executed  was  wholly  inoperative,  and  fraudulent  and  void 
as  against  the  complainant  and  other  creditors  of  said  limited  part- 
nership, and  made  with  the  intent  to  hinder,  delay,  and  defraud  such 
creditors.  That,  under  said  act  of  the  general  assembly  of  Illinois 
under  which  said  limited  partnership  was  formed,  all  the  assets  of  the 
said  limited  partnership  were  secured  and  pledged  to  the  payment  of 
the  debts  ratably,  and  that  it  was  the  duty  of  said  Bois,  Fay,  Conkey, 
and  Graves,  when  they  first  had  knowledge  of  the  insolvency  of  said 
limited  partnership,  or  at  the  time  of  their  pretended  dissolution 
thereof,  to  have  some  competent  trustee  appointed  to  take  possession 
and  charge  of  the  assets  of  said  partnership,  and  convert  the  same 
into  money,  and  distribute  it  ratably  among  the  creditors  of  said 
limited  partnership.     (After  setting  out  the  judgments  confessed,  pur- 


§  10.]  PREFERENCES   FORRIDDEN. 

suant  to  said  fraudulent  scheme,  the  levy  upon  and  Bale  of  I 
chattels  for  less  than  their  value,  and  the  appointment  o(  Hit 
as  receiver  of  said  firm,  the  bill  prayi  I:     ["hat  ea< 
ants  answer  (but  not  under  oa 
due  to  them,  respectively;  the  consideration  of  theii 
when  they  became  due,  and  what  amount  had  tx  lized  then 

That  each  of  the  said  confessed  judgments  may  be  decreed   to 
illegal  and  void,  and  that  the  said  pretended  transfer  of  the  propt 
and  assets  of  said  limited  partnership  to  Baid  Benjamin  1  .  Fay 
Lucius  W.  Conkey  was  fraudulent  and  void.     And  that  it  be  further 
decreed  that  all  the  goods  and  merchandise  levied  upon  and 
under  the  said  executions   based  on   Baid  confessed  judg 
either  of  them,  and  the  notes,  drafts,   bills  of  exchange,  debts,  and 
choses  in  action  so  takt-n  possession  of  by  Baid  Hancock,  were  and 
are  the  goods,  chattels,  property,  assets,  effects,  and  choses  in  action 
of  said  limited  partnership,  and  as  such  subjed    to  the   lien   of,  and 
charged  with  the  payment  of  all  debts  due  and  ..wing  by  said  limited 
partnership,  ratably  and  in  the  proportion  thai    each  debl  bears  to 
the  whole  indebtedness  of  said  limited  partnership,  and  thai  each 
the  defendants  be  decreed  to  pay  to  the  receiver  appointed  herein 
whatever  sum  they  or  either  of  them  have  received  out  of  the  said 
limited  partnership  assets  by  virtue  of  their  respective  judgments,  or 
any  proceeding  or  suit  based  thereon.     That,  out  of  the  moneys  paid 
to  such  receiver,  he  shall  pay  all  costs,  expenses,  and  attorney's 
necessarily  incurred  in  the  prosecution  of  this  suit,  and  the  remainder 
to  be  paid  ratably  to  the  creditors  of  Baid  limited  partnership,  and 
that  summons  may  issue,  etc.   .   .   . 

There  can,  we  think,  be  no  doubt  that  the  bid  Bhows  upon  it-  face 
that  complainants  are  entitled  to  the  relief  Bought,  if  it  sufficiently 
appears  that  the  limited  partnership  of  Bois,  Fay,  &  Conkey  legally 
existed.     The  statute  expressly  provides:  "  It  shall  not  be  lawful  for 

any  such  partnership,  nor  any  member  thereof,  in  < temptation  of 

bankruptcy  or  insolvency,  and  with  the  intention  and  for  the  purpose 
of  paying  or  securing  any  one  or  more  of  their  creditors  in  prefer 

ence  to  any  other  of  their  creditors,  to  make  any  sale.  ( veyance, 

gift,  transfer,  or  assignment  <»f  their  property  or  effects  or  to  conf<  B8 
an}- judgment,  or  to  create  any  lien  whatsoever  upon  their  property 
or  effects;  and  every  such  conveyance,  gift,  transfer,  or  assignment 
involving  such  judgmenl  orother  lien,  shall  be  and  the  same  is  hereby 
declared  to  be  utterly  void,"  <•.  84,  §  22,  supra. 

Chancellor  Walworth  said  in  Innes  v.  Lansing,  7  Paige,  58  ■■  -peak- 
ing of  the  New  York  statute  similar  to  our  own:  "The  title  of  the 
Revised  statutes  relative  to  limited  partnerships  appear-  to  have  i 

Stituted    the  effects    of    the  tii-iu    a    -pecial    \'\i\\>\    for    the    hen,!;    of    all 

the  creditors,  which  fund,  in  case  of  insolvency,  is  to  be  distributed 
among  such  creditors  ratably,  in  proportion  to  the  amount  <,f  their 
respective  debts.     By  the  fifteenth  section  the  Bpecial  partner  Is  ; 


670  LIMITED   PARTNERSHIPS.  [CHAP.  IX. 

hibited  from  withdrawing  any  part  of  the  capital  of  the  firm,  or  any 
of  its  effects,  except  actual  profits  made  upon  the  original  capital ; 
and  by  the  twentieth  and  twenty-first  sections  every  sale,  assignment, 
or  transfer  of  any  of  the  property  or  effects  of  the  firm,  or  of  the 
property  or  effects  of  a  general  or  special  partner,  after  the  firm  or 
himself  has  become  insolvent,  or  in  contemplation  of  such  insol- 
vency, with  the  intention  of  giving  a  preference  either  to  a  creditor 
of  the  firm  or  to  a  creditor  of  the  general  or  special  partner,  is 
declared  to  be  void,  as  against  the  creditors  of  the  partnership.  The 
general  and  special  partners  are  also  prohibited  from  confessing  any 
judgment  creating  any  lien  upon  the  partnership  property,  or  the 
property  of  any  of  the  partners,  or  giving  any  security,  under  such 
circumstances,  and  with  such  intent.  It  is  evident  from  these  statu- 
tory provisions  that  the  legislature  could  not  have  intended  that  a 
creditor  of  such  insolvent  limited  partnership  should  be  compelled  to 
proceed  to  judgment  and  execution  at  law,  the  necessary  effects  of 
which  might  be  to  give  him  a  preference  over  other  creditors,  before 
he  could  be  permitted  to  file  a  bill  in  this  court  to  prevent  the  part- 
nership funds  from  being  wasted  by  the  insolvent  partners,  and  to 
obtain  payment  of  a  ratable  portion  of  his  debt  out  of  the  fund. 
Although  any  creditor,  therefore,  may  proceed  at  law  for  the  recovery 
of  his  debt,  unless  a  decree  has  been  obtained  in  this  court  for  the 
benefit  of  all  creditors  equally,  or  the  property  has  been  transferred 
to  a  trustee  or  receiver  for  the  purpose  of  having  such  a  ratable  dis- 
tribution thereof,  I  think  this  court  is  bound  to  carry  into  effect  the 
principle  of  the  statute,  by  treating  the  property  of  the  limited  part- 
nership, after  insolvency,  as  a  trust  fund  for  the  benefit  of  all  the 
creditors;  and  if  the  insolvent  partners  neglect  to  place  the  partner- 
ship effects  in  the  hands  of  a  proper  and  responsible  trustee,  to  be 
distributed  without  delay  among  all  the  creditors  of  the  firm,  other 
than  the  special  partner,  ratably  in  proportion  to  the  amount  of  their 
several  debts,  either  due  or  to  become  due,  any  creditor  may  file  a 
bill  in  this  court  in  behalf  of  himself  and  the  other  creditors  of  the 
firm,  and  may  have  a  receiver  appointed  to  protect  the  trust  fund, 
and  to  distribute  it  among  the  several  creditors  who  may  come  in 
and  prove  their  debts  under  the  decree  to  be  obtained  on  such  bill." 
This  case  is  followed  in  Whitcomb  v.  Fowle,  56  How.  Pr.  367 ; 
Batchelder  v.  Altheimer,  10  Mo.  App.  181.  See  also  Whitewright 
v.  Stimpson,  2  Barb.  379;  Troub.  Lim.  Partn.  §  393. 

The  controlling  question  in  this  case,  then,  is,  does  the  bill  show 
the  formation  of  the  partnership  in  question?  Both  courts  below 
held  that  it  does  not,  and  for  the  single  reason  that  the  affidavit  by 
Benjamin  B.  Fay,  one  of  the  general  partners,  that  the  amount 
specified  in  the  certificate  of  partnership  to  have  been  contributed  by 
the  special  partner,  Graves,  had  been  actually  contributed,  did  not 
conform  to  the  requirements  of  section  7,  supra.  The  language  of 
the  section  is:  "  At  the  time  of  filing  the  original  certificate  as  before 


§  10.]  PREFERENCES   FORBIDD1 

directed  an  affidavit  of  one  or  more  of  the  genera]  part 
be  filed  iu  the  same  office,  Btating  that  the  amount  in  mom 
property  at  cash  value  specified  in  the  certificate  to  have  been  i 
tributed  by  each  of  the  special  partners  to  the  common  has 

been  actually  and  in  good  faith  contributed  and  applied  to  the 
The  affidavit  set  out  in  the  bill  is  as  follows: 

"  State  of  Illinois,  County  of  Cook. .:  Benjamin  B.  Fay,  being 

duly  sworn,  deposes  and  >ays  that  he  is  one  of  th<  .!   partni 

in  the  limited  partnership  and  firm  of  Bois,  Fay,  v\.  (  onki  Vn.l 

deponent  further  says  that   the  amount  of  fifty  thousand     - 
dollars,  stated  in  the  certificate  of  said  partnership  to  have  been  con- 
tributed  to  the  capital  stock  thereof  by   the   said   special    parti 
has  been  actually  contributed  and  applied  and  paid  in  to  th< 
Benjamin  B.  Fay." 

"  Subscribed  and  sworn  to  before  me  this  80th  day  "f  March,  \.  d. 
1882.     [Seal.]     J.  Edward  Fay,  Notary  Public." 

The  objection  to  it  as  a  compliance  is  that   it  does  aol  Btate  in 
what  "  the  amount  of  $50,000  was  contributed,"  or  that  the  amount 
was  contributed  "  in   <_rood   faith."     I  ounsel  for  appellant  insi>t  that, 
even  if  it  should  be  held  that  this  affidavit  ih>v>  uol  conform  t<>  the 
requirements  of  section  7,  the  only  result  would  be  t«>  make  Gra 
liable  as  a  general  partner,  leaving  the  limited  partnership  b1  ill  exist- 
ing.    This  position,   under  the  allegations  of   the   bill,   we  do   not 
regard  tenable  since  section  8  of  the  statute  expressly  provides  that 
"no  such  partnership  shall  be  deemed  t<>  have  formed  until  Buch 
tificate,  acknowledgment,  and  affidavit,  shall  have  been  filed  a-  al 
directed."     Our  conclusion,  however,   is,   upon  a   further  considera- 
tion of  the  point,  that  the  affidavit  is  in  fact  a  substantial  complia 
with  the  requirements  of  statute.     Section  7  do.  s  uol   prescribe  the 
form   in  which  the  affidavit   shall  be   made,  nor   require   the   use  of 
particular  words    in   making  the  statement.      That    is    to  say,  if  this 
affidavit  had  stated  that  the  contribution  was  in  silver  coin  or  national 
bank  currency,  and  honestly  made,  it  could  not  have  be.-n  reasonably 
urged  that  it  was  insufficient  because  it  did  not  Bay  "  in  money,"  and 
"in  good  faith."     All  that  the  statute  requires  is  thai   if  the  con- 
tribution is  made  in  money  the  affidavit  shall  be  in  language  suffi- 
ciently definite  to  show  that  fact,  and  thai  it  was  contributed  fairly 
and  honestly.     Bates,  Lim.   Partn.  §31.     The  statement   here  that 
"the  amount  of  fifty  thousand  dollars  was  actually  contributed  and 
applied,  and  paid  into  the  same."  can   reasonably  be  given  no  other 
meaning  than  that  it  was  contributed  and  paid  in  cash.      In  Johnson 
v.  McDonald,  2  Abb.  Pr.  -".i7,  the  language   in  an   affidavit,  "paid 
in,  in  good  faith,  to  the  common  stock  of  said  linn,  the  sum  of  one 
thousand  dollars,"  was  held  to  mean  "  paid  in  cash,"  th<  courl  saj 
ing:  "What  is  the  legal  meaning  of  *  paid  in'?     Can  these  words 
mean,  legally,  anything  else  than  '  paid  in  cash'?"     s..  in  Holliday 
v.  Paper  Co.,  3  Colo.  848,  the  language  was,  "  Has  contributed  to  the 


672  LIMITED    PARTNERSHIPS.  [CHAP.  IX. 

said  firm  of  Holliday  &  Co.  the  sum  of  twelve  thousand  dollars,  which 
said  sum  has  been  actually  and  in  good  faith  contributed  to  the  busi- 
ness and  applied  to  the  common  stock  of  said  firm,"  and  it  was  said: 
"  The  only  interpretation  to  be  given  this  language  is  that  it  was 
$12,000  in  cash."  Counsel  for  appellee  say  those  cases  are  distin- 
guishable from  this  because  there  the  language  is,  "  sum  of,"  etc., 
whereas  here  it  is  the  "  amount  of,"  etc.  We  do  not  concur  in  this 
view.  The  words  "  sum  "  and  "  amount,"  in  the  connection  in  which 
they  are  used,  must  be  given  the  same  meaning.  It  seems  clear  to 
us  that  this  affidavit  cannot  be  true,  as  contended  by  counsel,  and 
yet  the  contribution  have  been  in  the  promissory  note  or  agreement 
of  the  special  partner  to  pay.  "  Pay  in"  does  not  mean  a  promise 
or  agreement  to  pay,  but  actual  payment. 

Does  the  affidavit  show  that  the  contribution  was  made  "  in  good 
faith"?  "  Good  faith"  means  "  honest,  lawful  intent;  the  condition 
of  acting  without  knowledge  of  fraud,  and  without  intent  to  assist 
in  a  fraudulent,  or  otherwise  unlawful  scheme."  And.  Law  Diet. 
The  fact  which  must  be  shown  by  the  affidavit,  as  required  by  the 
statute,  is  that  the  amount  specified  in  the  certificate  of  partnership 
to  have  been  contributed  by  each  of  the  special  partners  to  the  com- 
mon stock  has  been  honestly,  and  without  fraud,  paid  in  and  applied; 
and  we  think  the  statement  that  it  has  been  actually  paid  in  (which, 
as  we  have  seen,  means  paid  in  in  cash),  contributed,  and  applied 
fills  every  requirement  of  the  statute.  "  Actually  "  paid  in,  contrib- 
uted, and  applied  means  "  in  fact,"  "  really,"  "  in  truth,"  paid  in, 
contributed,  and  applied.  See  definition  of  the  word  "  actually." 
Webst.  Int.  Diet.  We  are  unable  to  see  that  the  addition  of  the 
words  "  in  good  faith,"  in  this  affidavit,  would  have  done  more  than 
emphasize  what  was  in  fact  stated.  The  affidavit,  as  made,  could 
not  have  been  true,  if  the  contribution  of  650,000  was  merely  color- 
able. It  has  been  suggested  that,  for  anything  appearing  in  Fay'a 
affidavit,  the  money  may  have  been  paid  in  to  be  immediately  with- 
drawn, but  we  do  not  think  so.  If  paid  in  merely  as  a  formal  matter, 
with  the  intention  of  again  drawing  it  out,  it  was  not  actually  paid 
in,  contributed,  and  applied  to  the  capital  stock,  and  the  affidavit 
was  absolutely  false.  The  addition  of  the  words  "  in  good  faith" 
would  have  stated  no  fact  not  alleged  in  the  affidavit  as  made.  The 
most  that  can  be  said  is  that  their  use  would  have  made  it  more 
explicit.  As  we  have  said  in  Henkel  v.  Heyman,  91  111.  96,  the 
statute  authorizing  limited  partnerships  must  be  substantially  com- 
plied with,  or  those  who  associate  under  it  will  be  liable  as  general 
partners ;  and  we  do  not  wish  to  be  understood  as  giving  a  meaning 
to  the  language  "  substantially  complied  with  "which  will  dispense 
with  the  statement  of  any  fact  required  to  be  shown  in  the  affidavit 
made  necessary  by  section  7.  What  we  do  hold  is  that  those  facts 
need  not  be  stated  in  any  particular  language,  and  that  they  suffi- 
ciently appear  in  the  affidavit  in  question,  and  that,  therefore,  the 


§  11.]      TRANSFORMED  INTO  GENERAL  PARTS 

limited  partnership  of   1,   is,    Fay,    &    Con* 

Counsel  for  appellee  make  the  further  point  that.  <  \ 

true,  the  bill  shows  upon  its  face  that  Buch  partnership  i 

and  they  insisl  that  complainant  cannot  attack  th< 

dissolution,  as  a  mere  contract  creditor.     Tl, 

admitted  by  the  demurrer,  are  to  the  that  tl, 

not  in  fact  dissolved,  but  that  the  parties  then 

to  dissolve  the  same  in  furtherance  of  their  pur] 

creditors,  and  to  wrong  and  defraud  the  complainant  and  i 

that  their  action  in  that  regard  was  whollj  |  void,      i 

being  true,  uo  reason  exists  wl  y  a  contra.-;  creditoi   i. 

an  unlawful  preference,  the  same  as  though  noattempt  had  been  n 

to  dissolve  the  partnership.   .   .   . 

K  ind  n  manded.1 


§11.     Transformed  into  General  Partnershi 

PERTH  AMBOT    MANUF'G    CO.   v.  CONDIT    m  al. 
21  X.  J.  L.  669.     1847. 

Carpenter,  J.     It  is  assigned  for  error  that  the  judge  on  the  trial 
refused  to  nonsuit  the  plaintiffs  below  for  certain   reasons  all. 
which  I  will  notice  in  the  order  presented  by  counsel. 

The  first  relates  to  the  form  of  the  action.     The  partnership  of  the 
plaintiffs  below  was  shown  to  be  one  formed  under  the  statute  ii 
lation  to  limited  or  special  partnerships,  Acl  of  February  9,  1887,  Elm. 
Dig.  376,  under  the  name  of  Condit  &  Bowles,  the  tw<  1  parti 

One  of  the  special  partners,  James  Vanderpool,  having  died  in  the  lat- 
ter part  of  the  winter  of  1843,  his  son,  Beach  Vanderpool,  in  \\  bom  bis 
interest  had  vested,  took  his  place.  It  was  urged  thai  by  §  12  of  the 
act  every  alteration  made  in  the  name  of  the  partners,  in  the  nature  of 
the  business,  or  in  the  capital  or  shares  there..!',  or  in  any  other  matter 
specified  in  the  original  certificate,  causes  a  dissolution  of  the  part- 
nership. That  this  was  such  alt.  ration  contemplated  and  provided 
for  in  that  section,  and  that  by  the  provisions  of  the  sai  ion, 

the  partnership  being  can  ied  on  after  such  alteration,  becamt 
eral  partnership,  and  subject  to  the  genera]  doctrine  regulating  Bucb 
partnership.     That  having  become  by  Bucb  alteration   general, 
names  of  all  the  parties  surviving  musl   necessarily  be  used  in  all 
suits  brought  by  the  firm;  al  any  rate,  that  the  action  should  have 
been  brought  by  Condil  &  Bo*  surviving  partners.      Without 

expressing  any  opinion  as  to  the  correctness  of  thi     i  a  of 

1  Parts  of  the  opinion  dealing  with  questions  ..f  practice  i.e. 
Baker,  J.,  did  not  concur. 


674  LIMITED    PARTNERSHIPS.  [CHAP.  IX. 

the  act,  and  whether  the  death  of  one  of  several  special  partners  will 
operate  as  a  dissolution,  it  is  a  sufficient  answer  to  say,  that  the 
liability  of  the  defendant  below,  if  any,  accrued  before  such  death 
occurred.  On  any  such  alteration  as  is  specified  by  the  section  of 
the  act  cited,  it  is  the  partnership  carried  on  after  such  alteration 
shall  have  been  made,  that  is  to  be  deemed  a  general  partnership, 
unless  renewed  as  a  special  partnership,  according  to  the  provisions 
of  a  preceding  section.  The  12th  section  therefore  does  not  apply  to 
prior  debts,  or  other  transactions  of  the  firm.  Suit  brought  by  the 
firm,  for  prior  debts,1  must,  by  the  very  terms  of  the  statute,  be 
brought  in  the  names  of  the  general  partners.  The  action  therefore 
was  rightly  brought.  .  .  .  Judgment  affirmed. 


SINGER  v.  KELLY. 

44  Pa.  St.  145.     1863. 

Thompson,  J.  On  the  loth  of  June,  1856,  a  co-partnership  was 
formed  for  the  transaction  of  a  general  commission  business,  in  the  city 
of  Philadelphia,  between  William  J.  Martin,  William  McAllister,  and 
Charles  Kelly,  under  the  firm  name  of  Martin  &  McAllister.  It  was  to 
be  a  partnership  under  the  Act  of  Assembly  of  the  2d  of  March,  1836. 
Martin  and  McAllister  were  to  be  the  general  partners,  and  Kelly  the 
special  partner.  The  firm  was  duly  organized,  and  Kelly  paid  in 
$20,000  in  cash,  his  agreed  contribution  to  the  firm.  The  firm  com- 
menced business,  but  in  about  six  months  failed,  sinking  the  entire  sum 
contributed  by  the  special  partner,  and  had  an  unliquidated  indebted- 
ness of  some  $78,000,  which  the  assets  were  totally  inadequate  to 
satisfy.  Under  these  circumstances,  the  plaintiff  has  brought  this 
action  against  all  the  partners  (on  four  firm  notes),  seeking  to  make 
the  special  partner  liable  on  the  ground  that  the  business  of  the  firm 
was  changed,  and  that  such  change,  without  first  having  a  new  certifi- 
cate, rendered  him  liable. 

The  evidence  of  a  change  consisted  of  two  distinct  purchases  by 
Martin  &  McAllister:  one  on  the  26th  of  June,  1857,  of  fifty  bales  of 
cotton,  amounting  to  $4,200,  for  which  they  gave  notes  ;  and  the  other 
four  days  after,  of  sixty  tierces  of  rice,  at  $2,100,  also  on  a  credit  of 
four  months.  The  learned  judge  of  the  District  Court  who  tried  the 
case  was  of  opinion  that  there  was  no  proof  of  knowledge  or  assent  by 
the  special  partner  to  these  purchases,  outside  the  legitimate  scope  of 
the  business  of  the  firm.  He  therefore  reserved  the  point  whether  a 
special  partner  could  be  made  liable  for  a  change  in  the  business  with- 
out a  knowledge  that  it  had  taken  place,  and  directed  a  verdict  for  the 

1  This  action  was  brought  for  goods  sold  to  the  Perth  Aruboy  Manufacturing  Co. 
by  Condit  &  Bowles,  before  the  death  of  James  Vanderpool. 


§  11.]  TRANSFORMED   INTO   GENERAL  PARTNERSHIPS. 

plaintiff,  subject  to  the  entry  of  judgment  for  the  defendant  nc 
veredicto.     Subsequently,  and  after  argument  in  bane  in  the  1 

Court,  judgment  was  entered  for  the  defendant  on  the  point 

We  have  before  us,  therefore,  the  case,  '*  pure  and  simple,"  i 

to  charge  a  special,  as  a  general  partner,  on  account  of  a  change  in  the 

business  of  the  firm,  without  any  knowledge  whatevi  in 

the  business  of  the  firm,  either  in   point  of  fact,  or  as  a  presumj 

arisins:  from  his  connection  with  the  transaction,     t  an  this  be  don< 

The  section  of  the  act  under  which  this  result  is  claimed  is  the  12th 
section,  and  reads  as  follows  :  ••  Ever}'  alteration  which  shall  be  made 
in  the  names  of  the  partners,  in  the  nature  of  the  bu  .  <»r  in 

capital  or  shares  thereof,  or  in  other  matter   S]  I   in   t  nal 

certificate,  shall  be  deemed  a  dissolution  of  the  partnership,  and  any 
such  partnership  which  shall  in   any  manner   be  carried  on  after  such 
alteration  shall  have  been  made  shall  be  deemed  a  general  partners] 
unless  renewed  as  a  special  partnership  according  to  the  last  |  precedii 
article."     The  contest  was  therefore  really  between  intelligent  action  as 
the  ground  of  liability,  on  the  one  hand,  and  a  claimed  liability  by  force 
mereh"  of  the  words  of  the  statute,  regardless  of  the  element  of  knowl- 
edge or  assent,  on  the  other.     Did  the  legislature  mean  this  last  \ 
tion  to  be  the   true  interpretation  of  the  clause?     Unless  it   plainly 
appears  that  liability,  without  any  reference  to  knowledge  or  intentional 
violation  of  the  provision  in  question,  was  meant,  we  should  not  give  it 
a  construction  tending  to  such  penal  consequences  as  is  contended  for. 
It  would  be  contrary  to  natural  justice,  and  such  result  should  not  be 
arrived  at  by  interpretation  unless  it  be  inevitable. 

It  is  a  maxim,  further,  which  declares  that  no  one  shall  Buffer  for 
another's  fault:  "  Nemo  punitur  pro  alieno  d  I  admit  th 

are  exceptions  to  the  rule,  however,  things  mala  prohibita  may  indued 
liability  sometimes  without  the  knowledge  really  of  the  party  ultimata  ly 
liable.  In  cases  of  suretyship,  liability  always  arises  out  of  the  acts  or 
omissions  of  the  principal.  But  in  these  eases  the  consequence  results 
from  positive  legislative  regulations  on  the  one  hand,  and  the  nature  of 
the  engagement  on  the  other.  But  neither  of  these  relations  exists  here. 
I  cannctfind  any  warrant,  under  a  fair  interpretation  of  the  claus< 
the  statute,  for  holding  that  the  special  partner  is  a  guarantor  for  the 
general  partners,  further  than  his  deposit  according  to  the  contract, 
that  it  is  to  be  construed  as  a  penal  statute.  I  think  that  an  analysis 
of  the  statute  itself  will  show  that  its  consistency  can  only  be  preserved 
by  holding  the  special  partner  to  be  involved  alone  by  his  own  acts  or 
omissions°of  violation,  or  by  assenting  to  those  of  his  co-partners,  when 
he  knows  or  is  presumed  to  know  them.  We  have  no  de<  isions  on  the 
precise  point  under  consideration  in  our  own  State,  nor  have  any 
referred  to  as  adjudged  in  other  States  where  a  similar  law  i  W  8 

must,  therefore,  explore  the  meaning  of  this  clause  by  the  light  of  other 
provisions  in  the  statute,  involving  the  same  responsibility. 
Dissolution  of  the  partnership  is  what,  in  contemplation  of  the  law, 


676  LIMITED    PARTNERSHIPS.  [CHAP.  IX. 

was  the  first  consequence  to  flow  from  an}'  of  the  changes  or  alterations 
spoken  of  in  the  section.  But  the  law  also  contemplates  the  carrying 
on  of  the  business  in  an  associated  and  general  form  of  partnership, 
without  the  limitation  provisions,  and  holding  all  liable  as  general 
partners.  It  is  the  earning  on  of  the  business,  after  a  violation  in  any 
of  the  particulars  specified,  which  turns  the  concern  into  a  general 
partnership.  None  of  the  general  partners,  without  the  knowledge  or 
assent  of  the  special  partner,  could  change  "  the  nature  of  the  busi- 
ness" so  as  to  render  the  special  partner  liable  ;  it  would  be  to  apply  a 
more  severe  rule  than  could  obtain  if  the  violation  consisted  in  a  change 
of  the  firm  name,  or  of  the  capital  or  shares  in  it,  which  manifestly 
could  not  be  done  without  the  assent  of  all ;  and  yet  the  consequences 
would  be  the  same.  Thus  there  would  be  no  distinction  between 
intended  violations  and  those  neither  intended  nor  known. 

In  many  other  provisions  of  the  statute  the  consequences  of  viola- 
tions are  fixed  to  the  extent  of  general  liability  of  the  special  partner ; 
but  without  exception  I  think  they  all  imp]}'  the  knowledge  or  assent  of 
the  party  to  be  charged  by  the  acts  done,  to  which  the  consequence  is 
attached.  A  false  statement  in  the  original  certificate  has  this  effect, 
and  this  must  be  made  by  all.  So,  after  organization,  transacting  the 
business  of  the  firm,  or  acting  as  agent  or  attorney  for  it,  interfering  in 
its  business,  and,  perhaps,  for  reducing  capital,  will  each  render  the 
special  partner  liable  ;  but  they  all  imply  volition  with  knowledge  of 
the  act.  The  twentieth  and  twenty-first  sections  of  the  act,  especialby, 
exhibit  the  rule  of  practice  evidently  intended  by  the  legislature.  Assign- 
ments for  certain  purposes,  and  with  certain  intent,  after  insolvency  or 
contemplated  insolvency  by  the  firm  or  by  a  partner  under  the  same 
circumstances,  is  forbidden  ;  and  the  twenty-second  section  provides 
that  if  any  special  partner  shall  violate  an}'  of  these  provisions,  or 
assent  to  any  such  violations,  he  shall  be  liable  as  a  general  partner. 
The  ground  of  liability  is  here  plainly  expressed  as  only  to  ensue  in 
consequence  of  a  personal  violation  of  the  inhibited  act,  or  assenting 
to  its  violation  by  co-partners.  I  argue,  therefore,  that  if  the  statute 
throughout,  as  I  think  it  does,  fixes  the  consequences  of  violation  of  its 
provisions  to  be  general  liability,  and  they  necessarily  imply  knowledge 
and  assent,  we  may  fairly  presume  that  the  same  cause  was  supposed 
to  be  necessary  to  produce  the  same  result  in  the  clause  in  question. 
If  the  change  in  the  nature  of  the  business,  therefore,  by  his  co-partners, 
was  not  known  by  the  defendant  Kelly,  and  the  business  was  carried 
on  afterward  without  his  knowledge  that  it  had  been  so  changed,  ho 
would  not  be  liable  in  consequence  thereof. 

It  is  not  intended  to  deny  that  the  requisites  of  the  statute  must  be 
strictly  pursued  in  organizing  and  conducting  limited  partnerships,  but 
this  should  not  change  the  rule  of  interpretation,  which  requires,  in 
public  beneficial  statutes,  that  construction  which  will  promote  their 
objects  rather  than  destroy  them.  One  of  the  great  objects  of  the 
system  of   limited  partnerships  was  to  encourage  the  employment  of 


§  11.]  TRANSFORMED   INTO   GENERAL   PABTNERSHI] 

capital,  without  personal  activity  on  the  part  of  its  Owners 
ing  it  with  industry  and  enterprise,  which  might  not  be  pi 
capital.     But  should  we  hold  that  a  change  in  the  -.  which  n, 

be  made  by  the  active  partners,  without  the  kn< 
actual,  or  to  be  presumed  from  circumsta  ,1  parti 

the  capitalist,  and  he  is  liable  notwithstanding,  it  would  11  pru- 

dent men  from  investing  or  embarking  their  capital  in  any  Buch  wa 
for  by  the  very  terms  of  the  art  be  is  not  allowed  t.»  interfere  wit!. 
operations  of  the  concern.     Such  a  construction  would  put  him  a 
pletely  within  the  power  and  at  the  mercy  of  bis   co-partners,     Bui 
when  we  hold  him  only  for  his  own  acts  or  assent,  we  pon- 

sibility  on  its  true  footing,  the  choice  of  the  party. 

These  views  arc  supported  by  the  case  of  The  Madison  Countj  Bank 
/•.  Gould.  5  Hill,  30(J.     That  case  arose  on  the  New  fork  statul 
lating   limited   partnerships,  from  which  ours  was  copied,   i    I 
verbatim.     It  was  attempted  in  that  case  to  bold  tin-  Bpecial  partner 
liable  as  a  general  partner.     One  ground  was  a  mistake  of  :i  month  in 
the  advertisement:  in  setting  forth  the  commencement  of  the  firm  to 
in  November  instead  of  October.     The  court  there  held,  thai  as  tl 
was  no  evidence  of  any  intentional  violation  of  the  statute  in  the  mis- 
publication,  the  special  partner  was  not  liable  by  reason  of  it.     Another 
ground  claimed  for  liability  was  the  investment  of  a  large  portion  of  the 
capital  in  the  purchase  of  real  estate,  not  within   the  scope  of  the  busi- 
ness of  the  firm.     The  special  partner's  liability  was  made  t<>  turn  on 
the  question  of  knowledge  and  assent   to  the  purchases,  although  the 
conveyance  was  taken  in  his  name,  as  well  as  that  of  his  co-partners. 
Bronson,  Judge,  said:   "  I  cannot  think  him  liable  for  the  wrong  done 
by  his  co-partners,  without  showing  that  he  participated  in  the  act." 
In  the  same  spirit  is  Bowcn  v.  Argall,  24    Wend.  497.     We  an 
opinion,  therefore,  that  there  was  no  error  in  the  ruling  of  this  point  in 
the  court  below. 

We  see  nothing  in  the  other  specifications  of  error  requiring  special 
notice.  We  agree  with  the  court  below  that  we  see  no  reason  for 
holding  that  the  special  partner  had  anything  to  d<>  with  the  care  and 
collection  of  the  debts  of  the  firm  after  it  failed.  If  he  was  not  involved 
as  a  general  partner  ho  had  no  concern  in  il.  Ili>  mon.y  was  in  it.  and 
applicable  to  the  debts,  and  that  was  the  only  extent  of  hi-  connection 
with  it.  There  was  no  offer  to  -how  that  Kelly  assent.'. 1  to  mn  assign- 
ment of  assets,  SO  as  to  render  him  liable  on  thai  score,  and  the  court 
properly  rejected    the  naked  offer   to  prove   that   the  general   partners 

made  some  such  assignments. 

Judgnu  ni  of 


678  LIMITED    PARTNERSHIPS.  [CHAP.  IX. 

SARMIENTO   et   al.    v.    THE    CATHERINE   C. 

67  N.  W.  (Mich.)  1085.     1896. 

Long,  C.  J.  ...  It  is  objected  by  defendant's  counsel  that  Sarmi- 
ento  &  Co.  was  a  special  partnership,  and  that  by  reason  thereof  the 
suit,  being  in  the  name  of  the  general  partnership,  must  fail.  It  appears 
that  the  partnership  articles  were  adopted  between  Mr.  Sarmiento  and 
Mr.  Bowen  on  March  23,  1887.  This  was  a  limited  partnership,  and 
Mr.  Bowen  was  a  special  partner  thereunder.  This  partnership,  by  its 
terms,  was  to  terminate  on  March  1,  1892;  and  upon  the  trial  it 
appeared  that  it  had  terminated  before  this  contract  was  made.  The 
rule  is  that,  when  a  limited  partnership  expires,  the  partners  become 
general  partners  if  the  business  continues  by  the  partners.  Troub.  Lim. 
Partn.  120.  We  think,  therefore,  that  the  court  was  not  in  error  in 
permitting  the  action  to  be  sustained  in  the  name  of  both  complainants. 

Judgment  affirmed. 


§  12.    Creditors  of  the  General  Partner. 

SHERWOOD  v.  HIS  CREDITORS. 

42  La.  Annual,  103.     1890. 

Poche,  J.  This  appeal  involves  the  discussion  of  the  validity  of  a 
pledge  granted  b}-  the  insolvent  to  Francis  Martin,  his  partner  in  com- 
mendam, on  all  of  the  insolvent's  share  in  the  partnership  property, 
to  secure  an  indebtedness  of  $5,000.  The  contest  is  between  the  part- 
ner in  commendam,  as  a  creditor  of  the  insolvent  individually  and  the 
creditors  of  the  partnership.  The  partner  in  commendam  prosecutes 
this  appeal  from  a  judgment  which  refused  to  recognize  and  enforce 
his  rights  of  pledge. 

The  pertinent  facts  are  as  follows  :  A  pre-existing  partnership,  carry- 
ing on  the  business  of  manufacturing  doors,  blinds,  sash,  etc.,  under  the 
style  and  name  of  the  "  Enterprise  Sash,  Door,  and  Blind  Factory." 
and  composed  of  Alexander  Smith,  Francis  Martin,  and  Philip  W. 
Sherwood,  was  dissolved  in  the  early  part  of  November,  1887,  and 
Sherwood  bought  out  Smith's  interest  in  the  concern  for  65,000  cash, 
Which  he  paid  with  money  loaned  him  by  Martin.  Immediately  there- 
after, Sherwood  executed  an  act  of  pledge  of  his  two-third  interest  in 
the  factory  in  favor  of  Martin  to  secure  his  indebtedness  of  $5,000  to 
the  latter.  On  the  same  da}7  the  two  entered  into  a  co-partnership 
under  an  authentic  act,  with  Martin  as  a  partner  in  commendam,  to 
continue  the  same  kind  of  business  under  the  same  style  and  name  as 
heretofore.  In  the  new  business  Sherwood  contributed  his  undivided 
two-third  interest  in,  and  Martin  his  third  of,  the  factory,  with  a  stip- 


§  12.]  CREDITORS   OF   THE    GENERAL    PAB 

ulation  of  equal  shares  in  profits  and  losses,  limiting  Martin's 

contribution.     On  the  19th  of  April,  lv-~.  § 

of  the  partnership  assets,  and  a  syndic  was  ap|  on  Jum    15,  U 

Martin's  claim,  under  its  terms  and  in  accordance  with  th 
having  matured,  he  obtained   an  »rder  on   June  12, 

the  sale  of  Sherwood's  interest  in  th  ru.  which  had  been  \ 

to  him.     Before  a  sale  could  be  effected  his  proceeding  was 
by  the  syndic  on  numerous  grounds,  one  of  which  was  that, 
was  a  partner,  his  pledge  was  of  no  effect    toward  the  credit 
partnership.     The  syndic  having  thereafter  p 
the  assets  of  the  concern,  he  presented  an  account  on  which  be 
Martin  as   an   ordinary  creditor  only.     By  waj    of  opposition,  Martin 
urged  his  rights  of  pledge  on  the  proceeds  of  two-thirds  of  the   part- 
nership assets.    Whereupon  Shakspeare,  Smith.  & 
partnership,  opposed   Martin's  right   of  being  considered   as  a  i 
of  the  partnership  at  all,  on  the  ground    that    he  was  only  a  creditor  of 
Sherwood    individually.      The    various  oppositions    and   the    in; 
proceedings   were  consolidated   and  tried  together,   resulting  in  Judg- 
ment by  which  the  syndic's  injunction  was  perpetuate 
was  denied  and  rejected,  in  so  far  as  it  could    affect  the   rights  of  the 
creditors  of  the  partnership,  his   opposition   dismissed,  and  the  oppo- 
sition of  Shakspeare.  Smith,  &  Co.  maintained. 

From  the  foregoing  statement  of  farts,  tested  under  well  1  prin- 

ciples of  law   and  ofjurisprudence.it    is    apparent   that   the  judgn 
thus  rendered  is  correct  in  every  particular.     The  fallacy  of  appellant's 
contention  consists  in  his  assuming  the  attitude  of  a  third  party,  i 
a  stranger,  in  dealing  with  the  insolvency  proceedings  of  Philip  W. 
Sherwood,  for  the  purpose  of  winding  up  the  business  of  the  concern 
known  as  the    "Enterprise    Sash.   Door,  and    Blind    Factory."     [I 
elementary  in  commercial   law,  as  well   as  under  the   provisions  of  the 
Civil  Code,  that  "  the  partnership  property  is  liable  to  the  creditoi 
the  partnership  in  preference  to  those  of  the  individual  partner."  .   . 
Art.  2823.     And  for  such  purposes,  the  partner  ;  is  in 

no  better  position  than  an  active  partner.     As  a  member  of  an  insol- 
vent partnership  his  only  immunity  consists  in  the  restriction  ol 
liability  for  the  debts  of  the  concern  to  the  amount   which  be 
agreed  to  furnish  by  his  contract.     C.  C.  2842. 

°A  partnership  with  a  partner  in  comm  ma}  exisl  ineverj  ae 

elation  known  as  partnerships,  and  it  cannol   be  treated  as  a 
division   Of  partnerships.      C.  C.  2840.      Clinan   &    Co.  V.  Bl 
32   \i,  660;  Marshallu  Lambette,  7Rob.  471.   Hence  it  follows tli 
determining  the  rights  of  Martin  in  and  to  the  partnership  n 
a  creditor  of  Sherwood,  he  musl    be  treated  with  the 
which  would  be  meted  out  to  a  simple  commercial  partner  * 
|Ilthe  concern  is  liable  for  partnership  debts,  and  whose  clal 
creditor  of  his  partner  musl  be  subordinated  to  the  claims  ol  creditor* 
of  the  partnership.    Gueringerv.  Credit  A^n.  1279. 


680  LIMITED   PARTNERSHIP.  [CHAP.  IX. 

As  soon  as  the  partnership  between  Sherwood  and  Martin  was 
formed,  their  respective  previous  and  individual  interests  or  shares  in 
the  factory  were  vested  in  the  ideal  being  known  as  the  partnership, 
and  no  portion  thereof  could  again  become  the  property  of  the  partners, 
but  the  residuum,  after  the  payment  of  the  partnership  debts.  Succes- 
sion of  Pilcher,  39  An.  362.  Hence  the  district  judge  was  correct, 
not  only  in  holding  that  the  pledge  set  up  by  Martin  on  the  previous 
interest  or  share  of  Sherwood  in  the  concern  could  not  be  enforced  to 
the  detriment  of  the*creditors  of  the  partnership,  but  that,  as  he  was 
onl}-  a  creditor  of  Sherwood,  he  had  as  such  no  right  to  participate  in 
the  distribution  of  the  proceeds  of  the  partnership  assets.  His  only 
recourse  is  on  the  residuum  which  might  accrue  to  his  debtor  after  the 
full  liquidation  of  the  partnership. 

As  he  had  no  pledge  which  he  could  enforce  adversel\r  to  the  cred- 
itors of  the  concern,  it  follows  that  he  had  no  legal  right  to  wrench  the 
property  from  the  possession  of  the  syndic  for  the  purpose  of  effecting 
a  sale  of  the  same  independently  of  the  insolvency  proceedings.  Hence 
the  injunction  sued  out  to  stay  his  proceeding  was  properly  perpetu- 
ated. Judgment  affirmed. 


I N  D  E  X. 


ACTIONS, 

by  assignee  of  firm  claims.  216,  266. 

by  assignee  of  one  partner,  298,  152,  I 

by  the  firm,  303,  304,  ! 

by  the  survivor.  21G,  '2  18. 

against  the  survivor,  250,  255,  256   274. 

against  the  firm,  16G. 

against  deceased  partner's  estate,  188,  190,  500. 

against  limited  partnerships,  619. 

between  partner-,  at  law, 

541,  543. 
between  partners,  in  equity,  5U2,  518,  531,  53 
580,  584,  5S6,  587. 

ADMISSIONS  BY  A  PARTNER,  158,  369. 
ADVANCES  BY  A   PARTNER,  Su'o.  570,  530. 

ACCOUNTING, 

action  for,  by  creditor,  274,  419. 

action  for,  by  a  partner,  434,  159,  501,  502,  503,  515,  516,  631,  I 
568,  570,  57o,  5*0,  584,  586,  587,  622. 
ACCOUNT   STATED   BY   A   PARTNER,  312,   ;70. 
AGREEMENT  FOR  PARTNERSHIP,  34,  512. 
APPROPRIATION  OF   PAYMENTS,  211. 
ASSIGNMENT, 

by  one  partner,  effect  of,  on  firm  creditors,  285. 

by  one  partner,  of  claim  against  the  firm,  - 

by  survivor,  rights  of  assignee   365. 

by  firm,  for  benefit  of  creditor-.  1J  I.  138,  171.  I7.">. 

by  one  partner,  for  benefit  of  creditors.  151,  184. 

by  one  partner  of  his  share,  effect  of,  307,  U9,  522, 
ATTACHMENT, 

by  firm  creditors,  of  separate  property  77,  878. 

by  firm  creditors,  of  firm  property,  286,  382,  164. 

by  separate  creditors,  of  firm  property,  169,  667. 
AUTHORITY   OF    PARTNER,  310,811,812,818,814 

335,  388,  340,  341,  848,  ::il.  846,  :;I7,  348,849,  856,  868,  867- 

BANKRUPTCY, 

court  of,  is  a  court  of  equil  v.  265. 

distribution  of  as  el    in,  276,  1  15. 

of  one  partner,  its  effect  on  firm  credil  ■  '.  151    160. 

of  on''  partner,  it-  effecl  on  actiom  against  the  firm,  164. 


682  INDEX. 

BANKRUPTCY  —  continued. 
dissolves  firm,  372. 

proof  by  firm  against  separate  estate,  432,  531. 
proof  by  creditor  who  holds  collateral,  440,  444,  471,  480. 
when  firm  creditors  may  share  in  separate  estate,  445. 
firm  property  not  exempt  in,  448. 
rights  of  assignee  in,  of  a  partner,  451,  458,  460. 
discharge  in,  from  what  debts,  466,  468. 
of  one  partner,  its  effect  on  firm  rights,  469. 
proof  by  joint  and  several  creditor,  473,  474,  480. 
proof  by  assignee  of  creditor  partner,  471,  475,  478,  480. 
proof  by  creditor  partner,  477. 

proof  by  a  firm  having  a  member  of  bankrupt  firm,  478,  482. 
proof  by  a  firm  against  defrauding  partner,  531. 
proof  by  defrauded  partner  against  estate,  531. 

BURDEN   OF   PROOF, 

when  a  partner's  name  is  the  firm  name,  141. 

when  firm's  name  is  on  negotiable  paper,  322,  325. 

that  special  partner  is  liable  as  a  general  partner,  620,  632. 

BUSINESS   IN   COMMON, 

no  partnership  without  a,  17. 
consequences  of  carrying  on  a,  21-44,  86. 

CAPITAL, 

is  owned  by  the  firm,  538,  564,  575,  614. 
when  repayable,  575,  578. 

CERTIFICATE   BY   LI  MITED   PARTNERSHIP,  633,  655,  660,  671. 

COMMUNITY   OF   INTEREST,  ' 

necessary  to  a  partnership,  17,  21-44,  86. 

COMPENSATION   FOR   SERVICES, 

right  of  a  partner  to,  517. 

COMPETITION  BETWEEN  PARTNERS,  514. 

CONTRACT,  ITS  RELATION  TO  PARTNERSHIP,  1. 

no  partnership  rights  if  contract  unenforceable,  9. 
express,  not  necessary,  12. 
CONTRACTS    OF   A   FIRM,  131,  135,  137,  139. 
in  the  name  of  one  partner,  141. 
effect  of  dissolution  on,  363,  372. 
how  converted  into  those  of  a  partner,  293,  384-386. 

CONTRIBUTION   AMONG  PARTNERS, 

conditions  of,  51 S,  522,  539. 
rate  of,  521,  575. 
CONVERSION   OF  FIRM  PROPERTY  INTO   SEPARATE  ESTATE, 

by  act  of  the  firm,  187,  192,  196,  263. 
if  firm  insolvent,  196,  198,  201,  207. 

CORPORATIONS, 

defective,  may  be  partnerships,  41,  518. 

how  they  differ  from  limited  partnerships,  616. 
COSTS  OF  PARTNERSHIP  ACCOUNTING,  51S,  565,  573,  580,  5S6,  587. 


INDEX. 

CREDITORS,   RIGHTS    OF, 

of  partnership  by  estoppel,  7.  101,  102,  113,  115,  117,  ' 
of  partnership,  to  firm     - 

434,  475,  478,  184. 
of  separate  partner  to  separate  -.  421,  424,  H.">- 

of  separate  partner  to  levy  on  firm 
of  old  firm,  against 
to  an  accounting,  274,  110. 

of  firm  at  law  to  separate  property,  >77,  121. 

of  separate  partner  for  benefit  of  firm,  290 
against  separate  partner  after  novation,  29 
after  dissolution,  363  :'>7"'.  547,  554. 
against  dormant  partner,  396. 
against  ostensible  but  unknown  partner,  402. 
who  hold  collateral  security,  11".  144. 
when  not  affected  by  illegality  of  firm  bus  184. 

how  affected  by  estoppel,  647. 
of  limited  partnerships,  667. 
of  general  partner  in  limited  partnership. 

CUSTOMER, 

who  is  a  former,  103,  107. 

rights  of,  to  notice  of  dissolution.  103,  11".  398. 

DAMAGES, 

for  partner's  breach  of  contract.  512,  516,  517,  528,  531, 1 
against  members  of  limited  partnership  associations,  8 

DEATH, 

generally  dissolves  the  firm.  193,  545,  547. 

but  may  not,  37,  269,  333. 

effect  of,  on  firm  title.  245,  246. 

effect  of,  on  firm  contracts,  296,  188,  190,  193,  195. 

DEBT  OF   PARTNER  FOR  FIRM    BENEFIT,  290. 

DEBTS   OF   FIRM, 

are  debts  of  each  partner.  •->:,,  -js*.  :57.i.  :577.  :^.  I- 
this  doctrine  modified  when,  285,  286,  166,  500. 

DECLARATIONS    BY    A    PARTNER, 

when  binding  on  firm,  158,  311,  312,  341,  370,  372. 

DEED. 

to  a  partnership,  160,  161,  163,  164. 

by  a  linn.  343,  344. 
DEMAND   OF   PAYMENT  OF    FIRM    NOTE,  872. 
DISSENT   OF   A    PARTNER, 

DISSOLUTION. 

by  operation  of  law,  198,254,262,872,544,547,1 

by  agreement .  ;'r>7. 
in  breach  of  contract,  162,  554,  561. 
does  transfer  of  a  partner's  share  produce,  807,  119,  ■'--• 
bv  the  court,  L54,  134,  •",.".7. 
effect  of,  on  firm  rights,  159,232,245, 
set  of,  on  firm  liabilities,  296,  368,  866. 


684  INDEX. 

DISSOLUTION  —  continued. 

when  death  does  not  effect,  37,  269,  333. 
of  partnership  at  will,  554,  559. 
of  limited  partnership,  606,  622. 

DISTRIBUTION,    RULES   FOR, 

firm  assets  to  firm  creditors:  separate  assets  to  separate  creditors,  118, 1S9, 

198,  201,  209,  239,  281,  424,  445. 
in  winding  up  a  partnership,  174,  434,  563,  565,  570,  575. 
a  partner  as  a  creditor,  177,  298,  563,  565,  570,  586,  587. 
a  partner  as  a  debtor,  432,  531,  563,  565,  570,  586,  587. 

DORMANT   PARTNER, 

liability  of,  146,  396,  398. 

who  is  a,  398,  545. 
DOWER  IN   PARTNERSHIP  REALTY,  179. 

EQUITY,    DISTRIBUTION   IN,  424,  434,  438,  442,  474,  493,  518. 
EQUITY    OF   A   PARTNER,  116,  218,  222,  237. 

EQUITY,    LIABILITY    OF    DECEASED    PARTNER'S    ESTATE    IN, 
488,  490,  493,  495,  500. 

EQUITIES, 

how  adjusted,  580,  584. 

ESTOPPEL, 

on  creditors  of  limited  partnership,  647,  652. 
See  Partnership  by  Estoppel. 

EXECUTION, 

on  judgment  against  firm,  156,  193,  376,  403. 

on  judgment  against  a  partner,  403,  417,  418. 
EXECUTOR   OF   DECEASED   PARTNER, 

cannot  be  made  a  partner  without  his  consent,  77. 

liability  of,  when  he  does  become  a  partner,  79. 

rights  of,  246,  250,  253,  255,  256,  257,  271. 

liability  of,  to  firm  creditors,  488,  490,  493,  495,  500,  558. 
EXEMPT   PROPERTY   OF   PARTNERS 

does  not  include  firm  property,  113,  186,  260,  448. 

FARMING   ON   SHARES,  28,  30,  92. 

FIDUCIARY     RELATIONSHIP     BETWEEN     PARTNERS,    500,    502, 

503,  582. 
FIRM,  CHARACTERISTICS   OF   A, 

its  name,  131,  133,  135,  137,  139,  141,  160,  396. 

its  title,  134,  154,  155,  160,  176,  186,  222,  469,  581. 

actions  against  its  members,  158,  376,  383. 

effect  of  dissolution  on  its  rights,  159,  245-270,  363. 

effect  of  dissolution  on  its  liabilities,  363,  366. 

devesting  its  title,  187-244,  363. 

it  may  deal  with  its  members,  187,  471,  473,  475,  478,  482,  584. 

its  debts,  276,  277,  281,  283,  2S5,  286. 

license  to  a  firm,  its  effects,  298. 

its  contracts,  296,  301,  388,  397. 


INDEX. 

FIRM,    CHARACTERISTICS  OF   A  —  contin 

in  mining,  331. 

may  be  insolvent,  though  a  partner  m 
FORMATION  OF  PARTNERSHIPS,  1-1 
FRAUD   UPON    A    CO   PARTNER, 

annulling  partnership  for,  502,  557 

rights  of  defrauded  partner.  502,  •  1.  642,  B 

FRAUDULENT  TRANSFER  or  FIRM   PROPERTY,  124, 1 
201,  211.  237,  253,  27:'.  281,  1 

GOOD-WILL,  5SS,  002,  005. 

HOLDIXG-OUT  PARTNERSHIPS,   U 

ILLEGALITY   OF   FIRM    BUSINESS,   184,  I 
INCOMING   PARTNER, 

liability  of,  ;>30. 

INDISSOLUBILITY  OF   PARTNERSHIPS 
INFANCY    OF    A   PARTNER,  lb!.  115,  154,  155,  '119. 
INJUNCTION   AGAINST   DISSOLUTION,  ■ 
INJURIES   TO   THE   FIRM.  303,  304. 
INSANITY    OF   A   PARTNKR.  558. 

INSOLVENCY   OF   FIRM. 

though  one  or  more  members  solvent.  167,  468. 

does  not  exist  if  one  partner  solvent.  17n. 

limited  partnerships,  667. 
INTENTION   OF   PARTIES, 

its  relation  to  partnership,  8,  651. 

may  be  inferred  from  their  acts.  12. 

words  not  conclusive,  16,  17. 

specific,  not  conclusive,  20,  37-  1 1- 

as  a  test  of  partnership.  '12  95. 

INTEREST  OF  A  PARTNER,  123,218,222,237,240,241,24 

417,  418,  578. 
INTEREST  ON   ADVANCES,  572,  :<7:>.  :.7<;.  579. 

JOINT   DEBTS   OF   PARTNERS, 

not  distinguishable  from  firm  debts,  270.  277. 
are  distinguishable  from  firm  debts,  281,  2 

JOINT    DEBTORS, 

partners  are,  at  law,  276,  277.  388,  3! 

how  far  are  they,  in  equity.  271.  27:'..  I—.  1:'  '.  I 

modern  Legislation  relating  t".  •I'M.  500. 
JOINT-srocK    COMPANIES,  :;7.  608,  616. 
JUDGMENT    AGAINST   A    PARTNER, 

merger  of  claim  againsl  firm  in.  '■> 

See  Kxi.<  I  i  [ON. 
JUDGMENT   IX    ACTION'   AGAINS1     Mil:    FIRM, 

how  entered,  when  one  partner  an  infa 

how  executed,  156-7,  198,    i 


686  INDEX. 

LAND,    AS   PARTNERSHIP  PROPERTY, 

when  is  it  involved  in  partnership  dealings,  15,  139,  165. 

how  far,  treated  as  personalty,  161,  167,  169,  176,  179,  182,  240,  258. 

in  name  of  one  partner,  purchaser  of,  166,  177. 

partition  of,  166,  169. 

dower  in  partnership,  179. 

may  be  converted  into  personalty  by  partners,  182. 

LEASE,   LIABILITY   OF   FIRM   ON   A,  134,  340. 

LIABILITY   OF   A   PARTNER, 

for  his  co-partner's  torts,  112,  346,  347,  34S,  349,  351,  378. 
on  firm  contracts,  141,  285,  286,  288,  296,  376,  388,  393,  396. 
on  his  separate  contracts  for  benefit  of  firm,  290. 
upon  his  assumption  of  firm  debts,  293. 
to  his  co-partner,  502,  503,  518,  572,  587. 

LIBEL   ON   FIRM,  303. 

LICENSE   TO   FIRM,   EFFECT   OF,  298. 

LIEN, 

quasi  lien  of  partners,  122,  177,  199,  234. 

of  partner  for  advances  or  capital,  580. 

equitable  lien  of  firm  creditors,  124,  177,  204,  234,  237,  283. 

specific  lieu  of  firm  creditors  on  separate  estate,  421,  440,  442. 

LIMITED   PARTNERSHIPS, 

earliest  statutes  in  this  country,  608,  612. 

borrowed  from  France,  608,  612. 

are  true  partnerships,  606. 

how  dissolved,  606,  622,  627,  667,  674. 

effect  of  change  in  members,  607. 

with  transmissible  shares,  609,  615,  649. 

statutes  upon,  not  in  derogation  of  common  law,  613. 

construction  of  the  statutes  for,  613,  626,  631,  640,  655,  678. 

object  of  legislation,  613,  640,  677. 

how  they  differ  from  corporations,  616,  652. 

actions  against,  619. 

who  may  compose,  619,  623. 

requisites  to  formation  of,  624,  631. 

firm  name  of,  624. 

when  "  and  company"  may  be  used,  624,  666. 

title  to  property  in  general  partners,  628. 

use  of  special  partner's  name  in  firm,  630. 

payment  in  cash  by  special  partner,  632,  633,  641,  644. 

payment  in  good  faith,  632,  640,  644,  671. 

truth  of  the  certificate,  633,  640,  644,  655,  660. 

goods  in  lieu  of  cash,  634,  639. 

general  partnership  may  become  a,  636. 

interest  on  special  partner's  capital,  637. 

special  partner  may  engage  to  bear  losses,  638. 

effect  of  clerk's  failure  to  file  papers,  641. 

nature  of  business,  646. 

notice  to  those  dealing  with,  647. 

creditors  of,  may  be  estopped,  647. 

associations  without  general  partners,  649. 


INDEX. 


LIMITED  PARTNERSHIPS  —  condnw 

removal  to  another  county,  053. 

how  renewed,  655. 

-withdrawal  of  capital  by  special  p 

negotiations  before  organization  of,  664. 

capital  belongs  to  firm,  666. 

preferences  forbidden, 

when  transformed  into  general  partnershi] 

creditors  of  general  partner  cannot  lake  firm  pr< 

LIQUIDATING   PARTNER,  160. 

LOSSES, 

whether  sharing  of,  is  essential  to  a  partnership,  1- 

how  to  be  borne,  574,  57."!.  .".77. 

MAJORITY   TOWERS  OF,  353,  511  512. 
MARRIAGE   OF   CO-PARTNERS,  553,  623. 
MARSHALLING   ASSETS,  421,  124,440,445,  171,475,  17-. 

531,  583. 
MERGER  OF   FIRM  LIABILITY, 

in  judgment  against  a  partner,  388. 
MINING  PARTNERSHIP,  331,  529. 

MORTGAGE, 

power  of  a  partner  to  execute  a  firm,  '211,  306. 
on  a  partner's  share,  300,  580. 

NATURE  OF   A   PARTNERSHIP,  131 

it  is  an  entity,  131,  133,  207,  282,  285,  28i  180. 

it  is  not  an  entity,  134,  156,  199. 

it  may  contract  with  its  members,  1-7,  171,  478,  175,  17-.  I  - 
NEGOTIABLE    PAPER  OF    FIRM,  141,  301,  814, ! 
361,  363,  367,  372. 

NOTICE, 

of  dissolution,  103,  106,  108,  110,  367,  398,  176. 
of  limitations  on  a  partner's  authority.  308,  814, 

361,  646. 
of  dissent  by  a  partner,  356.  556. 
of  scope  of  limited  partnership  business,  646. 

NOVATION,  293,  384,  385,  386, 
OSTENSIBLE   PARTNER,  102. 

PARTNER,   RIGHTS    AND    POWERS    OF    A. 

the  solvent  or  surviving  partner,  6,  79,  246,  248,  258,  255,  S 

271,  305. 
over  firm  realty,  161,  182,  257. 
to  sell  or  mortgage  personalty,  210,  211,  212,  806  «,  Ml. 

to  Dav  individual  debt  -  with  firm  property,  211,  216,  810, 
to  incur  firm  obligations,  135,  187,801,811, 
341.  346  352,  : 


688  INDEX. 

PARTNER,    RIGHTS   AND   POWERS   OF   A  — continued. 
to  make  general  assignment,  216,  253. 
to  the  benefits  of  a  firm  license,  298. 

to  sign  firm  name,  135,  137,  301,  314,  323,  326,  328,  334,  361,  488. 
to  sue  for  injury  to  the  firm,  304. 
to  execute  a  firm  deed,  343,  344. 
after  dissolution,  363,  366,  367,  369,  370,  372,  547. 
to  compensation  for  services,  517,  573. 
in  a  mining  partnership,  529. 
to  repayment  of  capital,  564,  575,  578,  614. 
to  repayment  of  advances,  565,  570,  580. 

PARTNER,    SHARE   OF   A,  123,  252,  578. 
sale  of,  218,  222,  237,  240,  241,  243,  252. 

PARTNER,   DUTIES   OF   A,   TO    CO-PARTNER, 

to  consult,  before  selling  entire  stock,  214. 

to  consult,  before  making  general  assignment,  216. 

to  estate  of,  255,  257,  260,  271. 

of  utmost  good  faith,  501,  502,  503. 

to  devote  himself  to  the  business,  515,  517. 

to  make  contribution,  518. 

to  pay  for  firm  property  taken,  572. 

to  repay  over  drafts,  587. 

PARTNER,   DUTIES   OF   A,    UPON   WITHDRAWAL, 

to  give  notice  to  former  customers,  103,  110. 
to  give  notice  to  the  public,  106,  108. 

PARTNERSHIP, 

joint  agreement  to  do  a  particular  piece  of  work  is  not,  1,  17,  93. 

buying  goods  for  division  among  buyers  is  not,  1. 

sharing  profits  between  lender  and  borrower  does  not  constitute,  3,  80,  85 

although  lender  may  have  large  powers  of  control,  4-5. 

how  it  differs  from  joint  ownership,  6,  15,  245-270. 

sharing  profits  in  lieu  of  wages  does  not  constitute,  7,  90. 

contract  for,  in  real  estate,  is  within  statute  of  frauds,  9. 

may  exist  between  husband  and  wife,  11. 

may  exist  without  express  contract  for,  12. 

may  not  exist,  though  parties  call  themselves  partners,  16,  17. 

common  business  necessary  to,  17,  21-44,  69. 

specific  intent  to  form  a,  not  necessary,  20,  37. 

how  it  differs  from  tenancy  in  common,  21-27,  243,  256,  537. 

how  it  differs  from  farming  on  shares,  28,  30. 

how  it  differs  from  a  social  or  benevolent  society,  30. 

provisional  committeemen  do  not  constitute,  33. 

how  it  differs  from  a  contract  for,  34,  512. 

includes  joint-stock  companies,  37. 

death  of  joint-stockholder  may  not  dissolve,  40. 

defectively  incorporated  association  may  be,  41,  518. 

sharing  profits,  as  a  test  of,  45,  47,  55,  57,  523. 

sharing  profits,  exceptions  to  old  rule,  50,  57. 

relation  of  usury  to,  45. 

intention  of  parties,  a  test  of,  62-95. 

how  it  differs  from  a  lease,  86. 

how  it  differs  from  a  pool,  88. 


INDEX.  60 

JARTNERSHTP  —  continued. 

is  sharing  of  losses  essential  to, 
by  estoppel,  96-130. 
liability  of,  for  torts,  112. 
nature  of  a,  131-3' 
may  deal  with  its  members,  1  37,  2 
does  transfer  of  a  partner's  .-hare  dis£  '7. 

trading  and  non-trading,  oil.     -  1U. 

scope  of,  3-20,  334, 
peculiarities  of  a  raining,  331. 
seal  of,  343.  344. 
controlled  by  majority.  353,  356. 

its  status  after  dissolution,  363,  31  7.  869,  870,  873. 

remedies  of  creditors  against,  376-500. 
illegality  of.  184,  569. 
fiduciary  character  of,  501-524. 

See  Accounting,  Attachment,  Bankruptcy,  Capita]    I 
cution,  Good-Will,   Insolvency,   Limited   Partnership,   Ma 

SHALLIXG,    PliOOK    OK    CLAIM. 

PARTNERSHIP  INTER   SE» results  from  contract,  1-1 
PARTNERSHIP  AS   TO   THIRD    PERSONS,  I 

where  there  is  no  contract  and  no  holding  out,  59,  61,  73. 

PARTNERSHIP   BY  ESTOPPEL,  96-130,  399,  175,651. 

rights  of  creditors  of  the  real  owner,  7.  102,  111',  1 15,  1 17.  12  '. 
rights  of  creditors  against  holding  out  partner,  101,  102,  I 
liability  of  members  of,  for  torts,  1 12. 

PROFITS,    SHARING   OF, 

as  a  test  of  partnership.  15,  55,  57,  61. 

exceptions  to  old  rule,  50,  74,  82. 

the  modern  rule,  62. 
PROOF   OF   CLAIMS, 

by  firm  estate  against  a  partner,  531. 

See  Bankruptcy. 
PURCHASER   UNDER   PROCESS  AGAINST  A   PARTNER, 

rights  of,  403,  417,  419. 

RECEIVER   OF  PARTNERSHIP,  622. 
REPRESENTATIONS   BY    A    PARTNER, 

liability  of  firm  upon,  341,  346,  348. 

to  a  co-partner,  502. 
REPUTED  OWNERSHIP,    DOCTRINE  OF,  121. 
RIGHTS  OF  PURCHASES   OF    FIRM    PROPERTY, 

from  partner  having  apparent  title,  166,  8 

from  sheriff  under  process  againsi  one  partner,  108,  117,  119. 

SCOPE   OF   PARTNER'S  AUTHORITY, 801, 808     L4, 
515. 
in  mining  partnership,  529. 

SEAL.   CONTRACTS    UNDER, 

how  entered  into  by  a  firm,  848,  8 1  1. 

11 


690  INDEX. 

SECRET  STIPULATIONS,  12,  306. 

SET-OFF, 

against  surviving  partner,  247. 
between  partners,  584. 

SHERIFF,   DUTIES  AND  RIGHTS   OF, 

under  process  against  the  firm,  156,  193,  2S5,  286,  376,  377,  382,  403. 
under  process  agaiust  a  partner,  378,  403,  406,  417,  418,  469. 

SPECIAL   PARTNER, 

his  death  dissolves  firm,  606. 

rights  and  powers  of,  610,  620,  622. 

as  a  creditor,  611,  614. 

liability  of,  613,  622,  626. 

interference  by,  622,  627,  661. 

when  liable  as  a  general  partner,  624, 631,  633,  638,  644, 653,  655,  674, 67a 

may  borrow  his  capital,  637. 

may  engage  to  pay  losses,  638. 

SURVIVORSHIP  AMONG  PARTNERS, 

of  firm  title,  245,  246,  248,  250,  253. 

of  liability,  271,  273,  488,  490,  493,  495,  500. 

of  right  to  wind  up  business,  365,  470. 

TENANTS  IN  COMMON, 

partners  not,  after  dissolution,  255,  257,  260. 

survivor  and  executor  as,  260,  262. 

solvent  partner  and  bankrupt's  assignee  as,  451,  460,  461,  470. 

solvent  partner  and  purchaser  of  another  partner's  share,  403. 
TITLE   TO   PARTNERSHIP   PROPERTY, 

how  taken  and  held,  134,  154,  155,  160-186,  581. 

how  devested,  187-244,  396,  445. 

how  affected  bv  sale  of  partners'  shares,  218,  222,  237,  240,  365. 

is  it  distinct  from  titles  of  the  partners,  222,  237,  240,  241,  243,  304. 

how  affected  by  death  of  a  partner,  245,  248,  253,  255,  256,  257,  262,  263, 
266. 

TORTS, 

liability  of  partners  for,  112,  346,  347,  348,  349,  351,  378. 
to  firm,  actions  for,  303,  304. 

TRADING   FIRM, 

what  is,  314,  323,  329,  331. 

implied  powers  of  partners  in,  314,  323,  326,  328,  334,  335. 

implied  powers  of  non-trading  partners,  338,  340. 

TRUSTEE   FOR   FIRM, 

a  partner  may  hold  property  as  a,  166,  177. 
is  the  surviving  partner  a,  254,  256,  257,  262. 
the  liquidating  partner  as  a,  460. 
TRUSTEE   FOR   THIRD   PERSONS, 
liability  for,  when  one  partner  a,  351. 

USURY,  relation  of,  to  partnership,  45,  96. 

VOID   PARTNERSHIP,  502. 


INDEX. 

WINDING  UP  FIRM   AFFAi: 
by  surviving  partn-  170. 

by  receiver.  4-U.  -17-. 

rules  for  distribution  in.  171.  563,  565,  S3  S4. 

by  solvent  partner,  451,  40>1 .  i 

costs  of  suit  for,  how  borne.  518,  I  7. 

partuer's  right  to  recover  his  contribution  I  54,  575,  576. 

debts  due  from  partuer,  OOi,  oG7,  07u,  075,  TjbO,  C»i. 


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